Top 5 Benefits of Step Up SIP

SIP is a method of investing in mutual funds in a disciplined and regular manner to create long term wealth in the market. However, you may not know that there is a new version of the plan known as Step Up SIP. 

It is possible to apply this plan, whereby you are permitted to invest more periodically, and reap the results faster. Now without any further delay let me tell you what is Step Up SIP, how it operates and what are the 5 most attractive benefits of Step Up SIP.

What is Step Up SIP?

SIP with annual increase or a step up SIP is a kind of investment plan in which the SIP amount to be invested can be gradually raised at fixed intervals, either in terms of percentage or in actual amount. 

In contrast to the fixed monthly input of funds in SIPs, here, you get the freedom to increase the input according to the increase in your income level and your investment goals. It assists in the development of a large repository that grows systematically in comparison to immediate and ad-hoc approaches.

How Step Up SIP Works

Initial Investment: The subject to be funded begins with a base amount, for example; ₹10,000 per month.

Periodic Increase: You select a predetermined step up, percentage or a fixed sum for the SIP such as the SIP amount be 10% higher than the previous month.

Automatic Adjustment: This makes sure that your SIP amount increases by the chosen percentage or amount each year after the order has been placed.

Compounding Effect: Compound interest allows the investment amount to grow rampantly, hence the returns are higher than the investment amount.

5 Key Benefits of Step Up SIP

Now, let's look at the 5 key benefits of Step Up SIP:

1. Aligns Investment with Income Growth

As people progress in their employment or business, their income is likely to increase. As the amount of income increases, the Step Up SIP plan enables you to increase the investment amount every year, which is the main advantage of Step Up SIP.

And this means that one can be able to invest more during the process of earnings leading to a bigger corpus over the years. For example if you invested ₹10,000/- per month and increment it by 10% per year, then the amount invested will always be higher than traditional SIP.

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2. Harnesses the Power of Compounding

Indeed, compared to other forms of investment, one of the greatest strengths of SIPs is compound interest, that is getting returns on returns. SIP amount can be increased regularly resulting in boosting this effect further. 

For instance, if the investment starts with ₹5,000 that increases by 10% every year, the investors’ contributions will certainly shoot up more because of compounding as compared to a fixed SIP amount. It can also result in high returns in the long run.

3. Beats Inflation

Inflation works to erode the value of the money you have over time. This is why Step Up SIP benefits helps prevent this as it increases the investment amount, ensuring that the investment grows in real terms.

For instance, if the inflation rate in a year is 6%, increasing your SIP by 10% ensures that one keeps up with inflation and the value of the investments.

4. Encourages Financial Discipline

The best advantage of Step Up SIP is that it helps develop investment discipline. This alone helps you control your income and expenditure, to the extent that you can set aside a portion of your income for savings by agreeing to make annual increases in the investment amount.

It also helps in slowly and steadily building a sizable repertoire over time. It is so useful as when you have decided to save let’s say $200 and you are instilled with a reminder to ensure that you do not spend beyond the limit set.

5. Flexibility and Convenience

Benefits of Step Up SIP is that Step Up SIPs are particularly versatile. It is flexible in the sense that you can choose the percentage or the amount by which you want to raise your SIP each year. 

Further, the process is automatic meaning one does not have to change the security investment manually. The availability of such data makes a person more likely to stick to the set budget and spending plans.

Data Insights

Here’s a quick comparison to show the benefits of a Step Up SIP:

• Traditional SIP: Starting with ₹5,000 per month for 10 years at an annual return of 12% would yield around ₹11.61 lakhs.
• Step Up SIP: Starting with ₹5,000 per month, increasing by 10% each year for 10 years at an annual return of 12% would yield around ₹14.76 lakhs.

This example shows how a Step Up SIP can generate significantly higher returns over the same period. 

You can also compare the difference in returns of Regular SIP and Step Up SIP using our tools: SIP calculator and Step Up SIP claculator.

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Conclusion

A Step Up SIP is a really good method to improve your functionality for growing wealth more effectively with the help of regular increase in the income, additional working capacities of organic compounding, inflation ramping up returns, enforced savings, and ease in handling the procedure. 

If you have Plans of achieving your financial targets and would wish to dominate your investment, then it is about time you started a Step Up SIP plan.