SIP is a way to invest in mutual funds using fixed amount over a period of time, where as step up SIP or modified SIP is a way to increase your SIP amount every year based on increase in your income with help of promotions, bonus, salary increments, etc. This increase in SIP amount via step up SIP helps to achieve your financial goal faster compared to the normal SIP where you invest fixed amount over long term.
Let us understand more details about SIP vs Step up SIP.
SIP vs Step up SIP Returns Calculation Video
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Above video helps you to understand the returns on SIP and Step up SIP for same tenure, in which case step up SIP helps us to achieve our financial goals before time.
SIP vs Step-up SIP: Returns Comparison
Let’s put real numbers to this. Say you start a SIP of Rs. 5,000 per month, expecting a 12% annual return, for 10 years. Here’s how a regular SIP compares to a Step-up SIP with a 10% increase every year:
| Particulars | Regular SIP | Step-up SIP (10% yearly increase) |
|---|---|---|
| Starting monthly investment | Rs. 5,000 | Rs. 5,000 |
| Monthly investment in Year 10 | Rs. 5,000 | Rs. 11,789 |
| Total amount invested (10 years) | Rs. 6,00,000 | Rs. 9,56,245 |
| Maturity value (@12% returns) | Rs. 11.6 Lakh | Rs. 16.8 Lakh |
| Extra wealth gained | — | Rs. 5.2 Lakh more |
The extra Rs. 3.56 lakh you invest over the decade with a step-up SIP ends up generating an additional Rs. 5.2 lakh in wealth, thanks to compounding working on progressively larger amounts each year. The longer your investment horizon, the bigger this gap gets due to compounding benefits you get over long term.
Benefits of SIP
- SIP full form is Systematic Investment Plan, which helps you to invest a specific amount consistently over long period in mutual funds or stocks
- This investment need to be aligned with your long term financial goals of at least 7 to 10 years
- You financial goal of long term can be to buy a new house, child’s education or any other goal that would take you minimum 7 to 10 years
- We have seen historically that Index mutual funds have given almost 12% returns on average for past 15 to 20 years
- Considering such returns, SIP can help you to gradually invest in mutual funds and move closer towards your financial goals
- But this SIP is a fixed amount that will help you to move towards your goal slowly. With time, as your income increases, you should also increase the Investment amount, and here is where we use step up SIP discussed below.
ALSO READ: Rs. 1000 SIP returns Calculation for 15 Years
Benefits of Step up SIP (Modified SIP)
- Step up SIP or Modified SIP is a way to increase your SIP amount after every year based on the increase in your income
- If you are a salaried employee, you get salary increment based on your performance, bonus or promotions, in which case your monthly income increases
- This increase in monthly income can help you invest extra via SIP, instead of using the extra income in extra expenses
- Here you need to be careful not to let your monthly expenses go out of hand, but instead use the extra income to contribute towards your investments
Why to use Step up SIP
Simple answer is to reach your financial goal before time and let money work for you and earn extra money. Let’s understand this using the table below where we do some mathematics in terms of percentages:
| Portfolio Amount | Monthly Returns % | Profits Made |
|---|---|---|
| Rs. 10,000 | 1% | Rs. 100 |
| Rs. 1,00,000 | 1% | Rs. 1000 |
| Rs. 10,00,000 | 1% | Rs. 10,000 |
| Rs. 1,00,00,000 | 1% | Rs. 1,00,000 |
| Rs. 5,00,00,000 | 1% | Rs. 5,00,000 |
As seen in above table, if you earn 1% monthly return on your Rs. 1 lakh of portfolio, your profit is Rs. 1000. But in case you have Rs. 1 crore during that same time in your portfolio, your profit amount is Rs. 1 lakh which is very huge compared to profits made on Rs. 1 lakh.
This is really the whole point of building a large portfolio — the same 1% monthly return generates dramatically more profit once your corpus crosses milestones like Rs. 1 crore or Rs. 5 crore. At that stage, your portfolio itself starts generating meaningful passive income, rather than you relying solely on your salary or business income.
This is exactly why a step-up SIP makes sense for most people: it gets you to these bigger milestones faster, so your money starts working harder for you sooner.
Watch below video to understand Step up SIP Returns Calculation:
Why Step up SIP is better than SIP
There are multiple Reasons why step up SIP is better than normal SIP:
- Achieve Goals before time: You can achieve your financial goal of let’s say 10 years within 7 years, simply by increasing the SIP amount every year. In this case you only increase the SIP amount every year when you get extra income due to increment or promotions
- Get Better Returns: Step up SIP helps to get better returns over long term compared to normal SIP mainly due to the increase in SIP amount. This can also help to achieve your goals faster
- Retire Early: FIRE (Financial Independence and Retire Early) is the term used for getting financial independence and retire to achieve other life goals. Step up SIP can help you FIRE if you are aggressive during your 20s and 30s while doing step up SIP over long term
That said, step-up SIP isn’t automatically the right choice for everyone. If your income isn’t predictable — for example, if you’re a freelancer, run a business with variable cash flow, or aren’t confident about annual raises — a regular SIP gives you more breathing room, since you’re not committing to a rising monthly outflow. Step-up SIP works best when you have reasonable visibility into your income growing steadily, like a salaried role with regular increments.
ALSO READ: Retirement Calculator in Excel
How to maximize returns using Step up SIP
You can maximize the returns using 2 important factors:
- Increase Returns Rate: This will need to carefully search for best mutual funds in order to get higher returns compared to other mutual funds with average returns. Small cap and mid cap mutual funds can provide you higher returns over long term compared to large cap mutual fund, but they have extra risk associated with them
- Increase Portfolio Amount: A higher portfolio amount can help you to get good returns over small increase in the returns rate. So you should be increasing your portfolio amount as soon as possible to get better benefits on returns rate.
Can I convert my SIP to step up SIP?
Yes, many AMCs (Asset Management Company) allows you to increase the SIP amount every year based on the increase in income due to promotions, increments, bonus, etc. So you can easily opt for step up SIP online via your broker or AMC
Frequently Asked Questions
Is Step-up SIP always better than regular SIP?
Not always. Step-up SIP gives better returns when your income grows steadily and you can comfortably handle a rising monthly investment. If your income is irregular, a regular SIP offers more flexibility and less financial strain.
By how much should I step up my SIP every year?
A common approach is to step up by the same percentage as your annual salary increment, typically 8–12%. Some investors prefer a fixed rupee increase instead (like Rs. 500 or Rs. 1,000 extra each year), which is easier to plan around.
Can I reduce my step-up SIP amount if my income drops?
Most AMCs allow you to modify or pause the step-up feature, or switch back to a fixed SIP amount, if your financial situation changes. Check with your specific mutual fund platform for the exact process.
Does Step-up SIP work for all types of mutual funds?
Yes, you can apply a step-up structure to SIPs in equity, debt, hybrid, or index funds. The step-up feature is about how much you invest, not which fund category you invest in.
Is there an extra cost for choosing Step-up SIP over regular SIP?
No, there’s no additional fee for opting for a step-up SIP. You pay the same expense ratio as any other SIP in that fund – only your contribution amount changes over time.
Conclusion
So step up SIP or modified SIP helps you to provide better returns compared to normal SIP. The simple reason is, due to increase in the deposit amount, the returns on step up SIP will also increase and also your portfolio amount will increase.
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Distributor Details: Name: Abhilash Gupta | AMFI Registered Mutual Fund Distributor | ARN: 367014
