Regular SIP vs Step-up SIP: How you can build Rs 2 crore retirement corpus instead of Rs 1 crore by 10% annual SIP increase

Regular SIP vs Step-up SIP: The popularity of Systematic Investment Plans (SIPs) in mutual funds is reaching new heights among investors. In July 2024, SIP investments crossed Rs 23,000 crore for the first time. According to the Association of Mutual Funds in India (AMFI), a record inflow of Rs 23,332 crore was recorded through SIPs in July 2024.

Experts believe that small, consistent investments in SIPs can help create substantial wealth over the long term. SIPs benefit from the power of compounding and rupee cost averaging. For those eager to achieve their financial goals sooner, the Step-Up SIP option can be particularly effective, potentially doubling your estimated corpus.

Regular SIP at Age 30

Let’s say you’re 30 years old and start investing Rs 10,000 every month in a regular SIP. Your goal is to build a corpus of Rs 1 crore by age 50. According to SIP calculators, if you invest Rs 10,000 monthly for the next 20 years at a 12 per cent compound annual growth rate (CAGR), your investment will grow to approximately Rs 1 crore (Rs 99,91,479). Of this, Rs 24,00,000 will be your total investment, with an estimated capital gain of Rs 75,91,479.

Step-Up SIP at Age 30

Now, consider that at age 30, you start with the same Rs 10,000 monthly SIP but opt for a 10 per cent annual increase in your SIP contribution. With this Step-Up SIP, and assuming a 12 per cent CAGR, your corpus could grow to nearly Rs 2 crore (Rs 1,98,88,715) over 20 years. In this scenario, your total investment would be Rs 68,73,000, with an estimated capital gain of Rs 1,30,15,716. Moreover, you could achieve a corpus of Rs 1 crore in just 16 years, with an investment of Rs 43,13,968 and a capital gain of Rs 60,06,289.

These calculations show that with a 10 per cent Step-Up SIP, your corpus can nearly double compared to a regular SIP. In other words, while it might take 20 years to become a millionaire with a regular SIP, a Step-Up SIP could help you achieve this goal in just 16 years.

Expert Advice: Adjust your SIP with income growth

AK Nigam, Director of BPN Fincap, suggests that as your income increases, so does inflation. Therefore, it’s essential to increase your investment in proportion to your income growth. This strategy maximizes the benefits of compounding. Reviewing your investments annually and opting for a Step-Up SIP can significantly enhance your wealth-building efforts.

Record Inflows Through SIPs

According to AMFI data, July 2024 saw a record inflow of Rs 23,332 crore through SIPs, up from Rs 21,262 crore in June. Additionally, the assets under management (AUM) for SIPs rose from Rs 12.43 lakh crore to Rs 13.10 lakh crore. Investments saw significant growth across debt, equity, and hybrid categories in July.