In a traditional SIP, you invest a fixed amount every month in a mutual fund scheme. In a step-up SIP, your investment amount automatically increases every year. This allows your investment to grow as your income increases.
Systematic Investment Plans (SIPs) have provided retail investors with an easy way to build substantial wealth. A large number of investors are investing in a disciplined manner for the long term through SIPs. If you adopt the Step-Up SIP method instead of the SIP, you will be able to build a substantial corpus more quickly. What is this Step-Up SIP?
Meaning of Step Up SIP
In a traditional SIP, you invest a fixed amount each month in a mutual fund scheme. In a step-up SIP, your investment amount automatically increases annually. This allows your investment to grow as your income increases. This strategy is very helpful in building a substantial corpus through investments. The advantage of this strategy is that investors can start with a small amount and build a substantial corpus over the long term.
Helpful in creating a large fund
Step-up SIPs can easily create a large corpus for retirement or your children’s higher education. This can be easily understood with an example. Suppose you invest ₹5,000 every month through a SIP. You make this investment for 15 years. We assume an annual return on investment of 12%. You will invest a total of ₹9 lakh over 15 years, which will create a corpus of approximately ₹24 lakh.
Investment grows faster than SIP
Now let’s take the example of a step-up SIP. Here, too, you start investing just ₹5,000 per month. The only difference is that you must increase your investment amount by 10% every year. This results in a total investment of ₹15.3 lakh over 15 years. This creates a corpus of approximately ₹36 lakh. It’s worth noting that increasing your SIP amount by just 10% every year creates an additional corpus of ₹12 lakh.
Get more benefit from compounding
If you start investing ₹10,000 per month in a SIP (SIP), increase it by 10% each year, and your corpus grows at 15%, you’ll have a corpus of ₹1 crore in just 15 years, ₹3 crore in 21 years, and ₹10 crore in 29 years. By 30 years, you’d invest ₹88.2 lakh, which would grow to ₹11.12 crore. Nearly 90% of your money comes from compounding.
Perfect for working people
Vijay Maheshwari, Founder, StockTrick Capital, said, “Step-up SIPs are ideal for those whose income increases every year. Working professionals are examples. If someone wants to build a large corpus for their retirement or their children’s higher education, a step-up SIP can easily create a substantial corpus within a few years.”
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