Introduction: Top Up SIP Vs SIP Benefits
Mutual funds have become a popular investment option, and one of the most common methods is through Systematic Investment Plans (SIP). SIP Calculator is an investment solution that allows individuals to increase their wealth in the long term by investing a certain amount every month in a mutual fund scheme.
Apart from regular SIP, there is also an option for top-up SIP in mutual funds. This facility allows investors to increase their existing SIP every year, either by a percentage of the SIP amount or a fixed amount. Financial advisors recommend top-up SIP as a sensible option when income increases. It enables investors to gradually increase their investment as their financial situation improves or their salary rises.
SIP is considered a safe way to invest, as it allows individuals to invest on a monthly basis instead of putting in a lump sum. This provides protection in case of market risks. Investors can evaluate their investments periodically and make adjustments such as opting for SIP top-up or pausing the SIP if needed.
Benefits of SIP Top-up
To understand the benefits of SIP top-up, let’s consider an example. Saurabh, aged 35, has opted for a SIP of Rs 10,000 per month for the next 20 years for his daughter’s marriage. Looking at the return charts of equity mutual funds, it is evident that many funds have consistently returned 12 to 15 percent or more over the last 15 to 20 years.
Considering inflation, Saurabh estimates a 12 percent return on his investment. Additionally, he decides to keep 10 percent of his SIP as top-up, regardless of any increase in income each year. Let’s see the calculation to understand the benefits.
Example-1: Regular SIP
– Monthly SIP: Rs. 10,000
– Duration: 20 years
– Estimated return: 12 percent
– Total Investment: Rs. 24 Lakhs
– SIP value after 20 years: Rs. 99.91 lakh
– Profit: Rs. 25.91 lakh
Example-2: SIP Top-up
– Initial Monthly Investment: Rs. 10,000
– Duration: 20 years
– Estimated return: 12 percent
– 10% top up every 1 year: Rs. 1000
– Total investment: Rs. 68.73 lakh
– SIP value after 20 years: Rs. 1.95 crore
– Profit: Rs. 1.27 Crore
What do you get from top-up SIP?
From the above calculation, it can be seen that if you opt for top-up SIP, the total value of your investment after 20 years would be around Rs. 2 crore. This means your total investment would be around Rs. 69 lakhs, resulting in a profit of approximately 1.27 crores. In comparison, with a regular SIP, you would get around Rs. 1 crore after 20 years, which is almost Rs. 76 lakh more than your initial investment of Rs. 24 lakh.
Furthermore, if your goal is to save Rs. 1 crore for your daughter’s wedding when she turns 20, a top-up SIP would help you achieve this goal before time. If not, you would end up with twice the target funding after 20 years.
– Wealth gain in regular SIP: Rs. 76 lakh
– Wealth gain in top-up SIP: Rs. 1.27 crore
It is important to note that investing in mutual funds and the stock market involves risks. It is advisable to consult a financial advisor before making any investment decisions. AkhandIndia.com does not take responsibility for any financial losses incurred.
