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19 Sep 2022
You have understood the importance of savings, and how systematic investment plan could help you achieve goals better. SIPs bring about a discipline in savings and investments, and also help in the process of creating wealth over the long term.
A lot of us, though, start wondering what changes we should make in our SIPs when market conditions change. SIPs are ideally to be continued irrespective of market conditions.
There is one change, though, which could be beneficial.
Top-ups.
Topping up an existing SIP simply means that you will increase the amount that you are investing each month through an SIP. You can increase your SIP by a fixed amount at pre-defined intervals. .
For instance, you may decide to top-up your existing SIP by a certain amount each year in April.
The idea is that the amount you invest through an SIP should increase alongside the growth in your income.
Let’s understand this better with an example.
Let’s assume if you intend to invest ₹5,000 per month over the next 15 years, you could accumulate ₹23,79,657 at the end of this period, assuming returns of 12% compounded annually.
To know how this calculation was done, you can check this SIP Top-Up Calculator.
Now, let’s see what happens when you increase your SIP by 5% each year. This corpus could be ₹31,07,782, assuming all other factors remain the same.
Suppose the SIP amount is raised by a more aggressive 10% each year. In that case, the amount accumulated at the end of 15 years could be ₹41,70,089– this is a difference of ₹17,90,432 or more than 75% higher as than what you would have accumulated without a top-up.
One way to make a SIP top-up simpler is to simply treat it like an essential expense. Automating it will help you further, as it eliminates the conflict of raising the allocation amount each year.
So why wait? Consider topping-up your SIP today!
Based on an assumed rate of return(s) of 12%, the above Investment simulation is for illustration purpose only. It should not be construed as a promise on minimum returns and safeguard of capital. KMAMC is not guaranteeing or promising, or forecasting any returns. SIP does not assure a profit or guarantee protection against loss in a declining market. SIP Calculator is designed to assist you in determining the appropriate amount. SIP calculator alone is not sufficient and shouldn't be used to develop or implement an investment strategy. KMAMC makes no warranty about the accuracy of the calculators/reckoners. The examples do not purport to represent the performance of any security or Investments. Investors may consult their financial expert to know if the same is suitable to them. In view of the Individual nature of tax consequences, each investor is advised to consult his or her, professional tax advisor.
This article is for information purposes only. The information provided herein is derived from public sources, believed to be from reliable sources. However, no representation or warranty, express or implied, is provided in relation to the fairness, accuracy, correctness, completeness or reliability of the information, opinions or conclusions expressed herein. Views expressed herein involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied herein. Kotak Mahindra Mutual Fund/ Kotak AMC is not indicating or guaranteeing returns on any investments. Past performance may or may not be sustained in future. Readers should seek professional advice before making any investment-related decisions and alone shall be responsible for any decision taken.
