Should You Use the Top-up SIP or Normal SIP Facility?

Among the many new product launches in the mutual fund industry, the launch of the SIP facility has been the most game-changing one, for both the industry and investors. SIP allowed small investors to dream big and plan for their financial goals.

SIP simplified the process of investing by combining the power of disciplined investing and compounding. To further allow investors to take maximum benefit of the market through SIP investing, many AMCs introduced Top-up SIP facility. A facility that increases your SIP contribution in line with the growth of your income levels.

Sounds promising, right? But, before subscribing to the top-up SIP facility, you should know everything about it. Like, what should be your ideal yearly increment amount and how much you will be benefitting from the investment etc.

Therefore, let’s have a closer look.

What is Top-up SIP?

Also known as Step-up SIP, it automates the process of increasing your SIP amount by a fixed amount or percentage at periodic intervals. The increase in your SIP amount should be in proportion to the level of hike in your salary and financial goals.

For example, if you expect an annual hike of 10%, then your SIP amount should also increase by 10%.

One needs to enrol for this facility right at the time of purchase of SIP. Here, the increment intervals can be quarterly, half-yearly and annually, which you can select as per your convenience.

Difference between Conventional SIP and Top-up SIP

In conventional SIP, your SIP amount remains fixed during the whole SIP tenure and does not allow you to change the SIP amount. The only option to increase the SIP amount is through buying a new SIP.

Whereas, Step-up SIP allows to automate the process and sync the increase of SIP amount with your expected growth of income. It allows you to reach your financial goal sooner compared to conventional SIP.

How Much Effective is Top-up SIP for your Portfolio?

Using Top-up SIP calculator, you can get a fair idea of expected returns from the investment.

Here, we will compare a normal SIP investment and a SIP with a top-up facility.

SIP with Top-up Facility Normal SIP
Rs 2,000Monthly ContributionRs 2000
20 yearsSIP Tenure20 years
10%Annual Increment Percentage-
15% Expected rate of return15%
Rs 13,74,600Total SIP ContributionRs 4,80,000
Rs 55,67,262Total SIP ValueRs 30,31,910

You can see, with Top-up SIP facility, you will fetch an additional return of Rs 25,35,352 with an additional SIP contribution of Rs 8,94,600.

I’m sure, you would be convinced with these numbers and will believe the efficiency of Top-up SIP facility.

But, I would like you to have a look at the following table when you do it traditionally by purchasing a new SIP after every 2 years. Check the difference.

Monthly ContributionRs 2000Rs 1000Rs 1000Rs 1000
SIP Duration20 years18 years16 years14 years
Expected Rate of Return15%15%15%15%
Total SIP ContributionRs 4,80,000Rs 2,16,000Rs 1,92,000Rs 1,68,000
Total SIP ValueRs 30,31,910Rs 11,04,256Rs 7,98.694Rs 5,71,906

*I have used SIP calculator and top-up SIP calculator from the same fund house to avoid variance in results.

Total Investment: Rs 10,56,000

Total SIP Value: Rs 55,06,766

If you compare the above table with the top-up SIP table, you will witness a starking difference.

With top-up SIP facility, you require an additional contribution of Rs 3,18,600 to reach the figure of over Rs 55 lakh.

Final Words

You must be surprised by the big difference in the result and I was too. In an investment journey, if you choose to be a passive investor, you tend to compromise on returns and flexibility.

You should be an active investor in your investment journey and take charge of your every investment. Understand the long term implications of every product like the Top-up SIP. before subscribing to any. A little effort in planning your investments will yield a positive result.

In the above-shown case, if you have opted for the later one (doing it traditionally), you are not only saving Rs 3,18,600 but also have enough room to multiply your earnings.