We live in the world of top-ups. Top-up mobile recharges, top-up health insurance plans, top up loans and so on. Similarly, there are top-up SIPs.
According to Abhijeet Dey, Senior Fund Manager, BNP Paribas, Asset Management Company,“A top-up SIP is an interesting feature that adds flexibility to the investment plan of an individual. It allows an individual to increase his or her investment amount in an existing SIP and can preclude the need to initiate a new investment in the same scheme.”
Here are some of the reasons why investing in a top-up makes sense.
When a person starts investing, his income would be small and so he would start with investing smaller amounts. A top-up SIP gives one the option of increasing the value of SIP gradually, so that one invests more.
Most individuals receive an increment in their salaries every year. Additionally, bonuses are considered an annual feature as well. An increment in income gives investors the opportunity to step up their investments. “A top-up SIP can help investors increase their investments in a particular scheme in a simple and efficient manner,” explained Dey.
Starting a new SIP would mean tracking and managing multiple SIPs, whereas a top-up SIP keeps the investments consolidated. However, a top-up SIP rids you of this hassle.
Increasing one’s investments is always a good idea as it helps one reach one’s goals faster. Whether the goal is your child’s education or your retirement, a top-up SIP can help you can reach the goal faster as compared to a fixed SIP.
Let us take an example. Suppose you have a goal of Rs 25 lakh. You are investing in SIPs and the expected return is 12 per cent. If you invest Rs 7,648 every year, it will take you 12 years to achieve the goal. In another situation, if you top up your SIP by 10 per cent every year, you will achieve the goal in 10 years. However, like in SIPs you have to remember that mutual fund investments are subject to market risks and returns are not guaranteed.
“The primary factor to consider when going for a top-up SIP is your financial goal and the investment time horizon. The investment amount can then be increased accordingly. Always be mindful that the increase in investment amount should not impede your current lifestyle or come at the cost of meeting your existing expenses,” stated Dey.
A specific form in this regard needs to be filled by the investor at the time of enrolling for the SIP to subscribe to a top-up SIP. Additionally, investors should be aware that a top up can be made in multiples of specific denominations only, like Rs 500.
Top-up SIPs are thus a good option to ensure that your investments grow steadily over time and you achieve your financial goals.