Regular SIP of ₹5,000 or Step-up SIP, which method will make you rich quickly? Understand the math of profit through calculations.

If you want to become a millionaire through SIP, then here are two ways of investing in SIP. One is regular SIP and the other is Step-up SIP. If you start with ₹5,000 per month, then which method will make you a millionaire quickly? Understand the whole maths through calculations here.

When it comes to investing in mutual funds, the first name that comes to mind is Systematic Investment Plan i.e. SIP. This is the most systematic and disciplined way to convert even small savings into big wealth. But do you know that there is a "smart" version of SIP, which can increase your earnings even faster? Its name is Step-up SIP. Often investors are in a dilemma whether to start a normal SIP or choose the step-up option. Here, with very accurate calculations, understand how big is the difference between these two methods and which option can take you to your financial goals quickly.

First understand, what is a normal SIP?

The concept of a normal SIP is very simple. Every month you invest a fixed amount, such as ₹ 5,000, in your favorite mutual fund scheme on a fixed date. This process continues for the time you choose without any change. This method is very good for those people whose income is stable and who want to maintain a discipline in investing.

What is a step-up SIP?

Step-up SIP is also called top-up SIP. This is an advanced form of normal SIP. In this, you keep increasing your SIP amount by a fixed percentage or amount every year. For example, if you start a SIP of ₹5,000 and choose an annual step-up of 10%, then:

Your monthly investment in the first year: ₹5,000

Your monthly investment in the second year: ₹5,500 (increase by 10%)

Your monthly investment in the third year: ₹6,050 (increase by 10%)

This method is best suited for salaried individuals whose salary increases every year. By investing a part of your increased income, you can make the most of the power of compounding.

Most importantly: The whole math of the calculation

Now let's come to the calculation. Let's assume that you are investing for 20 years and you get an average annual return of 12% on your investment.

Case 1: Normal SIP

Monthly investment: ₹5,000 (equal every year)
Investment period: 20 years (240 months)
Estimated return: 12% p.a.

As per calculation

Total invested amount: ₹5,000 x 240 months = ₹12,00,000
Final value of SIP: Approximately ₹45,99,287 (approximately 46 lakhs)
Total profit: ₹45,99,287 - ₹12,00,000 = ₹33,99,287 (approximately 34 lakhs)

Case 2: Step-up SIP

Initial monthly investment: ₹5,000
Annual increase: 10%
of investment Tenure: 20 years (240 months)

Estimated returns: 12% p.a.

As per calculations

Total amount invested: Approx. ₹34,36,500 (This amount is higher as it increases every year)

Final value of SIP: ₹93,15,692

Total profit: ₹93,15,692 - ₹34,36,500 = ₹58,79,192

This way you can understand that by just increasing your SIP a little every year, you can earn a good profit. This is the real power of step-up SIP. Keep in mind that the calculations here have been done on an estimated basis. It may also change depending on the fluctuations in the market.

FAQs

1. What percentage increase is best for step-up SIP?

Generally, an annual hike of 10% is considered ideal as it is close to the average salary hike for most people. You can keep it between 5% and 15% depending on your capacity.

2. What if I am unable to step-up my SIP in a particular year?

No need to worry. Most mutual fund companies allow you to pause the step-up in a particular year or restart it from the next year.

3. Can I convert my existing normal SIP to a step-up?

This depends on the policy of your fund house. Some companies allow this, while some require you to stop the old SIP and start a new step-up SIP.

4. What is the right time to start a step-up SIP?

As early as possible! The younger you start it, the more time compounding will have to work and the bigger your final corpus will be.