Making mutual fund investments through an equity-based systematic investment plan (SIP) is among the simplest and smartest moves one could make towards savings for the future. Contributing a supplementary 10% top-up every year to one’s SIP can help the money grow even better. Here’s how it works.
The Basics of Regular SIPs
If you start with a regular SIP of ₹5000 per month for 20 years, you would have invested a total of ₹12,00,000. At an average return of 12%, such an investment could grow to ₹49,95,740. This includes ₹37,95,740 as interest. This is how regular investments, coupled with compounding, can work in your favor over time.
The Magic of a 10% Top-Up
A 10% annual top-up to your SIP can make a huge difference in your savings. Take the case of a ₹5,000 SIP that is increased by 10% every year; you could end up saving almost ₹1 crore in 20 years. This top-up will help increase your invested amount over a period of time, aligned with your income increase.
How Top-Up SIP Works
In a top-up SIP, you start with a certain amount, say ₹5000 per month, and increase it by 10% every year. For example:
- In the first year, you invest ₹5000 every month.
- In the second year, you increase your SIP by 10%, so you would be investing ₹5500 every month.
- In the third year, your SIP would increase to ₹6050 every month, and so on.
By the end of 20 years, you would have invested a total of ₹34,36,500. With a 12% return, your investment could grow to ₹99,44,358, which is almost ₹1 crore.
Benefits of Top-Up SIPs
Top-up SIPs are excellent, as they allow you to increase your investments with an increase in your income. This will help you beat inflation and create a huge fund of savings without requiring a huge investment at the very outset. It is going to ensure that the money works really hard for you and secures a good, prosperous future.
