Systematic Investment Plans (SIPs) in mutual funds offer a disciplined way to build wealth, promote financial consistency, and leverage the power of compounding. However, when you start a regular SIP, you cannot increase the contribution amount during its entire tenure.
This rigidity comes with various drawbacks. Inflation reduces the purchasing power of your returns, and a static SIP may not generate enough returns to meet your evolving goals. Moreover, as your income grows, a fixed SIP fails to utilise the surplus funds effectively and limits your overall investment potential.
A step-up SIP helps you overcome all these challenges. It allows you to increase your SIP contributions systematically and makes it easier to beat inflation, leverage salary hikes, build a larger corpus, and achieve financial goals faster. Using a step-up SIP calculator further helps you make the most of this strategy. Let’s understand how in detail below!
Understanding step-up SIPs | A brief overview
A step-up SIP enables you to increase SIP contributions at regular intervals. Most commonly, these increments happen yearly. Step-up SIPs come in two main types:
- Fixed amount step-up: You increase your SIP by a fixed sum each year. Suppose you start with ₹5,000 and step up by ₹1,000 every year, it becomes ₹6,000 the next year, ₹7,000 the year after, and so on.
- Percentage-based step-up: Your SIP amount increases by a fixed percentage every year. For example, if you start with ₹5,000 and set a 10% step-up, your SIP will become ₹5,500 in the 2nd year, ₹6,050 in the 3rd year, and so on.
How does a SIP step-up calculator help?
A step-up sip calculator provides clarity on how incremental increases impact long-term returns. It considers:
- SIP amount: How much can you invest through the SIP every month
- Investment tenure: For how many months will you continue the SIP
- Expected return rate: The rate of return you expect (per annum)
- Step-up percentage: The percentage you will raise your SIP annually by
Once you enter the values, an increasing SIP calculator will display the following details:
- Total amount invested if you keep your SIP fixed
- Total growth without the annual increase
- Final corpus without the annual increase
- Total SIP amount invested with the annual increase
- Total future value with the annual increase
By comparing both scenarios, you can see how a step-up SIP helps you achieve your financial goals faster. You can even use this free online tool to compare different step-up strategies. For example, if you start with ₹5,000 per month and increase it by 10% annually, the calculator will show how much wealth you can build over 5, 10, 15, or 20 years. This allows you to plan mutual fund investments wisely and improve your strategy.
Key takeaways
A step-up SIP empowers you to grow your investments strategically and keep your financial goals achievable despite inflation and changing life circumstances. Instead of relying on a static SIP that may lose effectiveness over time, stepping up your contributions allows you to make the most of your savings without disturbing your budget.
Using a SIP calculator with the step-up feature simplifies decision-making by showing how different increments impact your final corpus. It allows you to plan wisely and select a suitable step-up percentage that aligns with your income and expense
