What is a step-up SIP and how much more wealth does it create vs. a normal SIP?
This article explains the concept of a step-up SIP and allows you to calculate how much more returns can you get using a step-up SIP vs. a normal SIP.
This article explains the concept of a step-up SIP and allows you to calculate how much more returns can you get using a step-up SIP vs. a normal 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 |
6 | 1,000 | 1,611 |
7 | 1,000 | 1,772 |
8 | 1,000 | 1,949 |
9 | 1,000 | 2,144 |
10 | 1,000 | 2,358 |
Related:
SIP, SWP and STP - what do they mean, which one should you choose and when?
Investible surplus = Income - Expenses
Income increases with time for most people while they are working and not yet retired. Their expenses also increase and not necessarily at the same rate.
Year | Income (10% hike) | Expenses (8% inflation) | Surplus | SIP | Extra investment |
---|---|---|---|---|---|
1 | 100.0 | 60.0 | 40.0 | 40.0 | 0.0 |
2 | 110.0 | 64.8 | 45.2 | 40.0 | 5.2 |
3 | 121.0 | 70.0 | 51.0 | 40.0 | 11.0 |
4 | 133.1 | 75.6 | 57.5 | 40.0 | 17.5 |
5 | 146.4 | 81.6 | 64.8 | 40.0 | 24.8 |
6 | 161.1 | 88.2 | 72.9 | 40.0 | 32.9 |
7 | 177.2 | 95.2 | 81.9 | 40.0 | 41.9 |
8 | 194.9 | 102.8 | 92.0 | 40.0 | 52.0 |
9 | 214.4 | 111.1 | 103.3 | 40.0 | 63.3 |
10 | 235.8 | 119.9 | 115.9 | 40.0 | 75.9 |
In this case, we can see that the investment amount is growing at 11% per year. We can invest this extra amount as a step-up SIP to create extra wealth. The rest of this article shows you how much extra wealth you create with a step-up SIP.
Related:
How easy is it to double your portfolio?
In each of the tables below, we show:
If the table shows a value of 50x, and the first value in the row is 10x, then it means that if the initial SIP is ₹10,000/month
Similarly, if the initial SIP is ₹50,000/month
Many investors do not have a step-up SIP already in place for their funds. Depending on the platform you have to follow one of the following steps:
We have a detailed article on this concept below: Does a step-up SIP provide a higher return than an ordinary SIP?
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This post titled What is a step-up SIP and how much more wealth does it create vs. a normal SIP? first appeared on 14 Feb 2024 at https://arthgyaan.com