When you hear the word top up, you immediately think of recharge. But the word top up also has some relevance when it comes to investing through Systematic Investment Plans (SIPs), especially when it comes down to the question – ‘how to increase the SIP amount?’.
A Top-up recharge used to be a saviour for us. Is a Top-up SIP also a saviour? Let’s find out!
Digging into the real meaning of Top-up SIPs
An SIP allows you to invest in various schemes of mutual funds regularly. A Top-up SIP, as the name suggests, allows you to top up your SIP contributions. Simply put, it allows you to increase your SIP amount by either a fixed amount or a fixed % at specified intervals. For most fund houses, the interval is half-yearly or annually.
Wondering how Top-up SIPs can be helpful to you? Read on!
The benefits of Top-up SIPs
- Top-up SIPs can help you battle inflation
You know that inflation has the power to reduce the power of your savings. Thus, you must invest your savings to earn inflation-beating returns. Naturally, the more you invest, the better able you will be to counter inflation.
- Top-up SIPs can help you reach your goals faster
The logic of compounding is simple. You earn returns on your original investment as well as on the returns that keep adding to it. Again, the more you invest, the more you can accumulate with the power of compounding. Thus, you will reach the target amount for your goals faster.
- Top-up SIPs help you make better use of your increased income
When you get an annual increment, you may not immediately think of increasing your investments. But if you have already opted for a Top-up SIP and, for example, opted for increasing your SIP amount by 10% annually, you will automatically make prudent use of part of your risen income. Auto debits ensure you save and invest regularly.
Can’t you make a lump sum investment with your increment instead of opting for Top-up SIPs?
Of course, you can! But Top-up SIPs tend to be better in quite a few cases. First, SIPs average out your cost of investment since you invest during different market movements. But in the case of lump sum investments, timing the market becomes essential. Second, if you don’t have a Top-up SIP already, you might delay investing or may end up not investing at all. Third, spreading your investment throughout the year with SIPs instead of investing at once will feel light on the pocket. Top-up SIPs can also help you bring financial discipline in life since you would save and invest more regularly.
Is opting for Top-up SIPs as easy as starting an SIP online? Let’s find out!
Here’s how to increase the SIP amount with top-up SIPs. You have two options:
- You know how to invest in an SIP. So simply start a new SIP with the amount that you want to increase.
- If the Asset Management Company (AMC) allows, then you can opt for a Top-up SIP midway. However, not all AMCs offer this option. So, it is better to opt for a Top-up SIP while starting your SIP.
One of the advantages of mutual funds is their minimum investment amount. Most fund houses allow you to top up your SIP with a minimum amount of Rs 500. And just like SIPs, there is no upper limit for topping up your SIP.
Conclusion
SIPs help you become financially disciplined through regular investments. Top-up SIPs further ensure that you save and invest your disposable income in a systematic manner to counter inflation and reach your goals faster.
An investor education initiative by Edelweiss Mutual Fund
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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY
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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
