MUMBAI: A Systematic Investment Plan, or an SIP, invests a fixed amount every month in a mutual fund. This averages out the purchase price, protecting you from investing a large amount at a high point in the market. SIP is a popular concept among investors who often calculate how long it would take an SIP of a given amount to reach a specific goal. For example, if you want to accumulate Rs1 crore in 10 years, an SIP of ₹45,000 per month is needed at a 12% return.
However, you can reach your financial goals much faster by topping up or increasing your SIPs every year, as your income rises. In the above example, a top up of 10% every year cuts down the time needed to reach your Rs1 crore goal to eight years instead of 10. A second way of SIP top up is using an absolute amount instead of a percentage. For example, you can top up your SIP by Rs5,000 per year. In the above scenario, this will also reach your goal of Rs1 crore in 8-9 years instead of 10. A number of mutual fund houses offer free top up calculators in order to help you figure out the amount needed. For instance SBI Mutual Fund has a fixed amount top up calculator and HDFC Mutual Fund has a percentage top up as well as absolute amount top up calculator. You have to input an assumed rate of return in the calculators. Another tool by Value Research tells you how much the historical SIP return on a given fund was.
Setting up a top up facility is simple. A number of mutual fund websites and online investment portals give you the top up option at the time of setting up the SIP. Note that top up does not commit you to a fixed amount. If you encounter financial difficulties, you can always pause or stop your SIP and resume it later.