What is SIP Top up and how it works


With times, your income levels change due to annual increase in salaries or business income, leaving surplus money to invest. A mutual fund SIP Top-up allows you to increase the SIP amount annually by a fixed amount or as percentage over the original SIP amount. Mostly SIP top up can be done with minimum Rs 500 annually or 5-10% increase on the original SIP amount.

Let us understand through an example –

Mohanraj wants to start a monthly SIP of RS. 20,000 for 20 years to build his retirement corpus in a mutual fund scheme. To arrive at this amount he used a SIP Calculator to know the amount required to be saved on assumption of 11% annual returns. SIP calculator shows that he can create a corpus of approximately Rs 1.75 Crore against an SIP investment of Rs 48 Lakhs during the 20 years period.

What if Mohanraj decides to Top-up his monthly SIP mutual fund investment amount by 10% every year?

He can create a corpus of approx Rs 2.82 Crores against an SIP investment of Rs 93.60 Lakhs. That means an additional corpus of over Rs 1 Crore by increasing the monthly mutual fund SIP by only 10% annually.

SIP typeAmountAnnual Top Up %SIP TenureTotal Amount InvestedCorpus Value at end
Normal SIP20,000020 yearsRs 48.00 LakhsRs 1.75 Crores
SIP -Top Up20,0001020 yearsRs 93.60 LakhsRs 2.82 Crores

(Notes: 10% Top-up amount on Rs 20,000 SIP means that every year the amount will increase by Rs 2,000. For example – First year Rs 20,000, second year Rs 22,000, third year Rs 24,000 and so on…)

Advantages of Top up SIP

Easily fights inflation – As inflation consistently erodes the value of your money, it is advisable to raise the mutual fund SIP contributions at least equivalent to the inflation rate if not more. Therefore, when you are planning the goal amount you should input the expected inflation rate in the SIP calculator.

Higher savings as income increases – Your income increases annually so if you top-up your mutual fund SIP annually by the expected increase in your income, then it auto adapts to your rising income.

Operational convenience – No need to start a new SIP account when your income increases. Fill up the SIP top up form while starting the SIP and it is done. The mutual fund company will increase the SIP amount every year automatically.

Reach goals faster – From the above example we saw how your SIP mutual fund investment can increase the target corpus amount. The other way to look at it is that you can reach the goal earlier than planned.

Invest in SIP and use the top-up option which can help you build a superior corpus faster and accelerate the journey to reach your goals. It also helps your annual savings keep pace with inflation while striking the right balance between discipline and flexibility.

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