SIP TOP UP is a facility where you can automate your increased contribution in SIP instalments by choosing either a fixed percentage (or) a fixed sum every year till the end of your SIP tenure in order to get a higher corpus.
This facility helps you to reach your goals faster and also with the desired corpus (keeping inflation in mind). This is ideally suitable for someone who is planning for LONG TERM GOALS like Children’s education, Buying a house (or) Retirement Corpus creation. By increasing your investment contribution periodically you benefit from the power of compounding with a higher corpus at the end of the term.
Let me illustrate this with an example:
For example, if someone has done a SIP of Rs.20000/- every year in a NORMAL SIP, he would have invested 48 lakhs and with 12.5% CAGR returns, the accumulated corpus will be Rs.2.13 crore.
But, if the same investor has done a TOP UP SIP of 10% increase every year in the monthly contribution starting with Rs.20000/- every year and increasing to Rs.22000 in 2nd year and Rs.24000 in 3rd year and so on, the total invested amount will be Rs.93,60,000 with a CAGR of 12.5%, the accumulated corpus would be Rs.4.97 crore (close to 5 crores).
This is the positive impact of SIP TOP UP while planning for Long term Goals.
Nowadays, the SIP TOP UP Cap amount is also introduced to put a CAP on the yearly contribution once it reaches a threshold limit. This can also be availed while registering a new SIP.
Importantly, discuss with your financial planner to decide on the corpus amount and how to achieve it with the right SIP TOP UP amount and to identify the scheme based on your risk profile.
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