Does a step-up SIP provide a higher return than an ordinary SIP?
This article explains how the return and corpus created vary between a step-up SIP and an ordinary fixed SIP.
This article explains how the return and corpus created vary between a step-up SIP and an ordinary fixed SIP.
All of these are standing instructions that get executed as per a schedule you specify:
A SIP is an instruction to a mutual fund to deduct from your bank account, typically every month, to invest in a mutual fund. The amount invested stays the same every month.
A step-up SIP is one where the monthly amount invested increases, say by 5% or 10%, after a year every year until you stop the SIP.
You can see how the monthly amounts in a SIP and step-up SIP change like this:
Year | SIP | 10% Step-up SIP |
---|---|---|
1 | 1,000 | 1,000 |
2 | 1,000 | 1,100 |
3 | 1,000 | 1,210 |
4 | 1,000 | 1,331 |
5 | 1,000 | 1,464 |
We have covered the basics of a step-up SIP in detail in the link below:
Related:
What is a step-up SIP and how much more wealth does it create vs. a normal SIP?
We have a data set for rolling returns: What are rolling returns of SIP and a lump sum of direct mutual funds?
Using that data set, in the table below, we show the median portfolio values for various equity mutual fund categories, for a 5 or 7-year SIP versus a 10% step-up SIP. The date range is January 2013 to June 2024.
Category | Any 5y SIP | Any 5y SIP 10% step-up | Any 7y SIP | Any 7y SIP 10% step-up |
---|---|---|---|---|
Contra Fund | 690,724 | 1,122,015 | 942,211 | 2,044,404 |
Dividend Yield Fund | 669,417 | 1,075,894 | 897,589 | 1,907,030 |
ELSS | 682,739 | 1,077,367 | 904,398 | 1,895,113 |
Flexi Cap Fund | 669,815 | 1,077,407 | 905,883 | 1,884,933 |
Focused Fund | 692,468 | 1,079,890 | 907,854 | 1,902,881 |
Large & Mid Cap Fund | 710,246 | 1,110,161 | 932,652 | 1,935,861 |
Large Cap Fund | 646,426 | 1,024,039 | 858,869 | 1,783,235 |
Mid Cap Fund | 751,573 | 1,175,645 | 989,243 | 2,097,582 |
Multi Cap Fund | 732,906 | 1,189,131 | 1,002,543 | 2,155,172 |
Sectoral/Thematic | 694,962 | 1,103,567 | 927,140 | 1,901,144 |
Small Cap Fund | 853,889 | 1,379,051 | 1,173,391 | 2,316,132 |
Value Fund | 689,919 | 1,086,240 | 908,994 | 1,870,727 |
Here, the SIP amount is ₹10,000 per month and increases, in the step-up case, by 10% a year.
In each of the cases, the portfolio with the step-up SIP is higher than the case with the fixed SIP.
Let’s look into a simple 10% step-up SIP like this:
Year | SIP | 10% Step-up SIP |
---|---|---|
1 | 1,000 | 1,000 |
2 | 1,000 | 1,100 |
3 | 1,000 | 1,210 |
4 | 1,000 | 1,331 |
5 | 1,000 | 1,464 |
Readers should recognize that this is a very simple combination of:
So there are two things to note:
The table below shows the step-up versus fixed SIP investment amount for a ₹10,000/month starting value. We have arranged the table in increasing order of invested amount.
Type Of Investment | Total invested |
---|---|
1y SIP | 120,000 |
1y SIP 10% step-up | 120,000 |
2y SIP | 240,000 |
2y SIP 10% step-up | 252,000 |
3y SIP | 360,000 |
3y SIP 10% step-up | 397,200 |
5y SIP | 480,000 |
7y SIP | 600,000 |
10y SIP | 720,000 |
5y SIP 10% step-up | 732,612 |
7y SIP 10% step-up | 1,138,461 |
10y SIP 10% step-up | 1,912,491 |
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Published: 8 December 2024
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This post titled Does a step-up SIP provide a higher return than an ordinary SIP? first appeared on 14 Jul 2024 at https://arthgyaan.com