Sometimes, the income that people earn isn’t sufficient for them to target their financial goals. Wealth creation is a long term process and without proper financial planning achieving long term financial goals may seem like a distant dream. However, through regular saving and investing one might be able to build a healthy corpus and finally fulfil the goals they are emotionally attached to.

One of the ways to create long term wealth through systematic investing is by starting a SIP in mutual funds. Mutual funds are a pool of professionally managed funds that invest in stocks, bonds, commodities, precious metals as well as in foreign economies to generate long term capital appreciation. Mutual fund investments do not guarantee returns but they may offer investors better risk adjusted returns over the long term.

To ensure that their investment journey in mutual funds doesn’t break its consistency, retail investors generally opt for a Systematic Investment Plan.

What is a Systematic Investment Plan?

Mutual fund investors have two options while investing –  they can either make a one-time lumpsum investment or opt for a Systematic Investment Plan. A Systematic Investment Plan is an easy and hassle-free way of investing in mutual funds. Some mutual fund experts interpret SIP as an ideal wealth creation tool because of several investment benefits that it offers. SIPs are meant to allow investors to invest small fixed sums at regular intervals (typically every month) and gradually accumulate a commendable corpus over the long term.

Although investing in mutual funds via SIP is a good idea, investing the same sum year after year may not effectively help investors with wealth creation. That is why some investors opt for the top up SIP option.

What is top up SIP?

A top up SIP is a SIP that allows investors to increase their monthly SIP sum periodically. Here’s an example to help investors understand how top up SIP works –

Shimla and Kamala both started their SIP journey together. Both started investing in the same mutual fund scheme. Shimla and Kamala started investing in mutual funds with a monthly SIP sum of Rs. 10,000/-each. Both were going to invest with an investment horizon of 20 years, but Shimla decided to opt for a top up SIP. In top SIP she allows her monthly SIP sum to be increased by 10% every year. The scheme in which they both invested delivered 8% returns.

Let’s see the difference between the corpus accumulated by Kamala and Shimla –

Investors            SIP type              SIP sum              Investment horizon       Total investment sum    Total corpus accumulated with 8% interest

Kamala Normal SIP         Rs. 10,000         20 years              Rs. 24,00,000     Rs. 59,29,472

Shimla  Top up SIP          Rs. 10,000 with annual top up of 10%    20 years              Rs. 46,80,000     Rs. 1,00,53 , 457.024

By opting for a top up SIP, Shimla managed to earn as much as twice the corpus that Kamala managed to accumulate. Also, if a 10% annual increase in the monthly SIP sum can make such a noticeable difference, imagine the wealth investors can create by increasing the top up sum by 20%.

Benefits of opting for a top up SIP

Save more year after year – An annual raise may tempt people to go on a splurging spree but instead, if they invest the extra income via top up SIP, they might be able to create more wealth over the long term. A top up SIP might probably be a sensible option to allow your savings to increase year after year and to ensure that your annual increment is put to good use.

Get close to your financial goals faster – The additional SIP sum that investors will be investing year after year will only enable them to achieve their financial goals faster. A top SIP may not only allow investors to accumulate the corpus they anticipated but they may also earn some added income which can be utilized to fulfil other financial goals as well.

May help overcome inflation – Inflation is inevitable which is why several investors try to save and invest more each year. Inflation can erode entire savings which is why investors may want to save more annually. To let them easily overcome inflation, investors may have no choice but to increase their yearly investments which can be done through top up SIP.

We are well aware of the benefits of SIP investing, but a top up SIP has additional benefits which will enable investors to earn better capital appreciation over the long run. If one wants to gain more information about top up SIP, they can reach out to a mutual fund house.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.