Step-up SIP is a way to increase the SIP amount after every year, that provides you benefit of disciplined investing, flexibility with SIP amount, Achieving goals before time, Beating inflation and goal-based investing. The idea is to increase the SIP amount every year after the salary or income increase, which would help you to achieve your goals before time and faster. Normal SIP would help you achieve Rs. 10 Crore goal in 45 years, where as with Step-up SIP you can achieve same.
Let us understand Step-up SIP in detail.
What is Step-up SIP in Mutual Funds?
- Step-up SIP (also called Top-up SIP) is a type of investment plan where you increase your monthly SIP amount at fixed intervals, usually once a year. So you continue the SIP amount you have been investing every month, but after a year, you increase the SIP amount
- Instead of investing the same amount every month, you decide in advance how much extra you’ll add each year – this can be either a fixed amount to be increased or a percentage of increase in your existing SIP Amount
- This helps your investments grow faster because you’re putting in more money over time, and compounding works better with higher contributions
- Step-up SIP is useful for people whose income increases regularly (like annual salary hikes) because your investments keep pace with your financial capacity. You can achieve the financial goals faster with Step-up SIP
- Example: If you start with Rs. 5,000 per month and increase it by 10% every year, your SIP grows to Rs. 5,500 in year two, Rs. 6,050 in year three, and so on. You can choose to increase SIP amount by a fixed amount as well, such as Rs. 500 or Rs. 1000 after every year when your income increases
- The main benefit is that it helps you reach long-term goals like retirement, buying a house, or children’s education more effectively and before time as compared to fixed SIP amount
Use below Step-up SIP Calculator to know the Returns on your Increasing SIP Amount
How does SIP with Step-Up work? [Example]
- In a regular SIP, you invest the same fixed amount every month (say ₹5,000).
- In a Step-up SIP, you start with a fixed amount but increase the amount at regular intervals (usually once a year).
You can choose either:
- Percentage increase (e.g., 10% every year), or
- Fixed amount increase (e.g., ₹1,000 extra after every year).
So for example, let’s say you start with ₹5,000 per month and decide to step up by 10% every year for 5 years.
- Year 1: ₹5,000 per month
- Year 2: ₹5,500 per month (10% increase)
- Year 3: ₹6,050 per month
- Year 4: ₹6,655 per month
- Year 5: ₹7,320 per month
By the end of 5 years, your monthly SIP has grown from ₹5,000 to ₹7,320. You can also round up the figures of SIP Amount that you increase after every year, above is just an example of how you can plan for Step-up SIP.
Below is the table of comparison of total invested amount in SIP vs Step-up SIP:
| Year | Normal SIP (₹ per month) | Step-up SIP (₹ per month) | Total Invested (Normal) | Total Invested (Step-up) |
|---|---|---|---|---|
| 1 | 5,000 | 5,000 | 60,000 | 60,000 |
| 2 | 5,000 | 5,500 | 1,20,000 | 1,26,000 |
| 3 | 5,000 | 6,050 | 1,80,000 | 1,98,600 |
| 4 | 5,000 | 6,655 | 2,40,000 | 2,78,460 |
| 5 | 5,000 | 7,320 | 3,00,000 | 3,66,306 |
| 6 | 5,000 | 8,052 | 3,60,000 | 4,62,937 |
| 7 | 5,000 | 8,857 | 4,20,000 | 5,69,230 |
| 8 | 5,000 | 9,743 | 4,80,000 | 6,86,153 |
| 9 | 5,000 | 10,717 | 5,40,000 | 8,14,769 |
| 10 | 5,000 | 11,789 | 6,00,000 | 9,56,245 |
Final Outcome (with 12% annual return)
- Normal SIP: Future Value ≈ ₹11.6 lakh
- Step-up SIP: Future Value ≈ ₹16.8 lakh
As you can see above, by simply stepping up your SIP by 10% each year, your total investment grows by ~₹3.5 lakh more, and thanks to compounding, your final wealth is ~₹5.2 lakh higher than a normal SIP. If you give more time to the market which helps you in compounding, the difference between SIP and Step-up SIP returns would increase more over time
WATCH: SIP vs Step-up SIP Returns Calculation Video
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Benefits of Step-up SIP
- SIP Amount Increase: As your salary or business income increases, your SIP amount also rises, ensuring your investments match your financial capacity which helps to achieve your financial goals faster
- Goals Achieved before time: By investing more each year, you take greater advantage of compounding, which significantly increases your long-term returns.
- Beats inflation: Regular increments in SIP contributions help offset inflation’s impact, so your savings retain real value over time. Average returns from mutual funds can be between 10% to 18% which is higher than inflation rate of 6%. Better the keeping the Salary amount in your Bank account!
- Goal-oriented investing: Step-up SIPs are ideal for achieving big financial goals like retirement, children’s education, or buying a house or a new car, since they grow steadily with your needs.
- Disciplined Investing: Automating the increase in contributions ensures consistency and removes the need for manual adjustments which can delay your investments and returns
- Flexibility: Investors can choose either a fixed amount or a percentage increase annually, based on the plan and comfort level.
- Psychological ease: Starting with a smaller SIP and gradually increasing it feels less burdensome compared to committing to a large amount upfront. So going to Rs. 10,000 SIP amount is the start looks like more burden compared to starting with Rs. 5000 and increasing by Rs. 1000 every year to reach Rs. 10,000 per month after 5 years. This builds up the consistency and discipline.
Is step up SIP better than SIP?
Yes Step-up SIP is always better than normal SIP, since you increase the amount of SIP amount over time. This not only helps you to be disciplined, but also to achieve your financial goals faster compared to normal SIP amount.
So if you have a wealth goal based on below table, the number of years taken by normal SIP and Step-up SIP is mentioned below, based on 12% expected returns from Market:
| Goal Amount | Time Taken by Fixed SIP(Rs. 5000) | Time taken by Step up SIP (10% Increase yearly) |
|---|---|---|
| Rs. 1 Crore | 25.5 Years | 20 Years |
| Rs. 2 Crore | 31 Years | 24.5 Years |
| Rs. 3 Crore | 34 Years | 27.3 Years |
| Rs. 4 Crore | 36.5 Years | 29.3 Years |
| Rs. 5 Crore | 39 Years | 30.8 Years |
| Rs. 6 Crore | 40.5 Years | 32.2 Years |
| Rs. 7 Crore | 41.5 Years | 33.3 Years |
| Rs. 8 Crore | 42.5 Years | 34.2 Years |
| Rs. 9 Crore | 43.5 Years | 35.1 Years |
| Rs. 10 Crore | 44.3 Years | 36 Years |
So as seen from above table, to reach Rs. 10 Crore with fixed SIP amount you need approximately 45 Years, where as to reach same amount with Step-up SIP amount you need 36 Years. That’s a difference of almost 9 Years less. This proves that with step up SIP, you achieve your financial goals faster.
ALSO READ: SIP vs Step-up SIP Returns Comparison
What are the risks of SIP with Step-Up?
While there are good benefits of Step up SIP, but there are certain reisks as well mentioned below:
- Income mismatch risk: Step-up SIP assumes your income will rise regularly (like annual salary hikes). If your income stagnates or drops, the higher SIP commitments may strain your budget. So for a goal like Retirement Planning, you need to plan the SIP amounts and the final retirement corpus accordingly before you leave the job, where your income stops. There can be lay offs that can come into picture which might hinder your SIP investments.
- Over-commitment: Increasing SIPs every year can lock you into bigger contributions than you’re comfortable with. If unexpected expenses arise (medical bills, job loss), continuing with higher SIPs may be difficult for you, so this is another risk.
- Market volatility: Since you’re investing larger amounts over time, a market downturn in later years can hurt more. We have already seen this during Covid in 2020, where the market returns were down and many of the retail investors had redeemed their investments because of fear and expected returns were below 12% during those 2-3 years.
- Inflation vs. real returns: While step-up SIPs aim to beat inflation, if the mutual fund you invest in, underperforms or inflation rises faster than expected, your increased contributions may not deliver the desired real wealth growth. So you need to restructure your investments accordingly to meet the desired milestones.
So these are some of the risks involved in SIP or step-up SIP investments.
Can you convert normal SIP to step-up SIP?
Yes you can convert the normal SIP amount into Step-up SIP amount in two ways:
- Either you can increase the SIP amount manually
- You can also make use of the features provided by platforms and AMC (Asset Management Company) website that allows you to increase the SIP amount after every year
So, these are the 2 options you have to increase and convert the normal SIP amount to step-up SIP amount.
Conclusion
So in summary, Step-up SIP is the way to increase the SIP amount after every year in order to achieve your financial goals faster and before time. Step-up SIP also provides you the flexibility to increase the amount based on the chosen frequency.It helps you to be disciplined towards investing and beats inflation as well.
You must opt for step-up SIP instead of normal SIP, so that the compounding benefit work for you to get good returns.
Frequently Asked Questions
How much is 5000 monthly SIP for 5 years?
Rs. 5000 SIP amount every month for next 10 years at 10% expected returns would give you around Rs. 11.61 Lakh as maturity amount. With step-up SIP, you can get Rs. 16.87 Lakh as maturity amount when you increase SIP amount with 10% after every year.
What is an example of a step-up SIP?
Example of Step-up SIP can be when you start at Rs. 5000, and increase the amount in terms of percentage (like 10%) or a fixed amount like Rs. 500. So in second year the SIP amount would be Rs. 5500, in 3rd year SIP amount would be Rs. 6000, and so on, every year the SIP amount would be increased. This is a simple example of step-up SIP
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