Today all are aware of Systematic Investment Plans(Sip). As it is a convenient way to invest small amounts periodically mutual fund sip’s have gained popularity. But very few people are aware of Step-up sip; an additional feature to normal sip.
What is Step-Up Sip?
In Normal sip, the investor invests “Same amount” throughout the tenure of his investment while in Step-up sip, the investor can increase his sip contribution annually either in percentage terms or in increase in sip amount.
For example, if the investor invests 5000 rupees per month and choose step-up sip by giving consent to increase 10% annual increase, his sip amount from the next year would be 5,500 rupees, from next year would be 6,050 rupees and so on.
If the investor chooses to increase certain amount instead of percentage terms, the sip amount would be increased as per the investors option.
Which gives better returns- sip or step-up sip?
Generally sip was recommended to inculcate investing habit among the investors. It brings self-discipline to put aside some money for the long-term goals.
But the trend has changed. As inflation is growing higher day-by-day sticking to the same amount wouldn’t suffice to meet your long term goals. To combat inflation, one has to step-up sip, but some think that it is not possible for everyone! But in practical, individuals salaries do rise annually and so the investments have to increase proportionately with the salary hike.
Step-Up sip has the capability to beat inflation rather than normal sip. The only thing the investor has to do is increase his sip contribution annually; which is nothing but Step-Up sip. Do committed with your goal amount and increase your sips proportionately according to your life stages.