Investing in a mutual fund the Systematic Investment Plan (SIP) is a simple and successful strategy to build wealth over time. You may take advantage of price volatility in the stock market by contributing a specific amount at a specified frequency in mutual funds – weekly, daily, fortnightly, monthly, or quarterly – through Rupee cost averaging of acquisition expenses as NAV. Monthly SIPs seem to be the most popular and recommended frequency among the many options.
As your income levels fluctuate over time due to yearly increases in salary or business income, you may find yourself with extra money to invest. A SIP Top-up enables you to raise the amount of your SIP each year.
What is a SIP Top-Up Facility?
The investor can use this feature to increase the amount of their SIP instalment at pre-determined intervals, such as annually or half-yearly. The top-up might be a percentage of your current SIP amounts, such as 10%, or multiples of a minimum amount set by the mutual fund, such as multiples of Rs 500.
Mr. A and Mr. B started investing in a specific equities mutual fund scheme in 2005, with a monthly commitment of Rs.10,000. For ten years, A invested a constant sum of Rs.10,000 each year. B, on the other hand, began raising his annual instalment amount by Rs.500.
Here are the 5 reasons why you should use SIP Top-Up Facility
Fight Inflation: With a top-up SIP, you can keep up with inflation. Because inflation erodes the value of the investment over time, it’s a great idea to increase your SIP contributions by almost the inflation rate. In India, the current average annual inflation rate is 7.5 per cent. As a result, it’s okay if you increase your SIP contributions by at least 10%.
Convenience: Top-up SIP runs on autopilot, saving you the trouble of registering new SIP accounts each time you seek to enhance your SIP instalment. Creating a new SIP and managing several SIP accounts can be time-consuming. Top-up SIP allows you to automatically raise your SIP amount in the same scheme and folio based on your option when filling out the SIP Top-up form.
Reach Financial Goals: SIPs are intended to assist you in achieving your long-term financial goals. A top-up facility allows you to achieve your financial objectives more quickly or broaden your objectives to match your requirements. Because you may expect your income to rise over time, increasing your investment in an existing plan is sensible to increase your wealth.
Keep investing in the existing plan: You won’t have to worry about handling many SIPs with this feature. A sudden increase in revenue or the discovery of a new source of income would necessitate methodical investment. However, seeking a fresh investment opportunity is time-consuming and unpleasant. Instead, adding to an existing investment may be the most cost-effective alternative.
Adapts to rising income: You expect your pay or income to increase every year. Employers provide yearly increments or bonuses that can be added to an existing SIP.
A Systematic Investing Plan is a wonderful method to have a disciplined investment strategy that will help you achieve your long-term financial objectives. Furthermore, mutual funds include top-up options for their SIP programmes, making it more convenient for investors.
You can raise your goal corpus by using a top-up facility, allowing you to pursue a strict investing strategy and have a versatile one. A top-up option will respond to any changes in your financial situation and will assist you in achieving your financial objectives much more quickly. A top-up facility helps an investor deal with a problem like inflation, but it also improves financial stability and prepares them for unforeseeable future events.