The nature of your financial goals is always changing. Certain long-term financial goals (e.g. the corpus required for your retirement) might keep changing in value over the years because of market volatility and inflation. You can protect your mutual fund investments from these variables by opting for the Systematic Investment Plan (SIP) top-up option.

What is an SIP top-up and how does it work?

An SIP top-up is a feature offered by mutual fund companies and banks that helps you gradually increase the value of your SIP contributions over time. You can choose to increase your SIP contributions by a fixed percentage or a fixed amount. You can also choose the frequency of this increase in SIP contributions – daily, weekly, fortnightly, monthly, quarterly, or yearly.

Advantages of SIP top-ups

Here are the key advantages of opting for an SIP top-up:

SIP top-ups are reliable hedges against inflation: SIP top-ups allow you to increase your investment amount over time, which can help maintain the purchasing power of your investments in the face of inflation. By increasing your SIP contributions, you can better align your investments with your long-term financial goals and the rising cost of living.

They offer convenience: Opting for an SIP top-up is a straightforward process. You can choose to increase your investment amount at any time, either during the initial setup or later, making it easy to adjust your contributions as your financial situation changes.

SIP top-ups can help you reach your financial goals faster: SIP top-ups can help you reach your financial goals faster by allowing you to invest more as your income grows or as you achieve milestones. This flexibility enhances your ability to practice goal-based investing, potentially resulting in greater returns over time.

How to optimise your investment plan with SIP top-ups

The SIP top-up facility offers you the ideal way to optimise your investment plan. You can follow these four steps:

Fix your investment goal: You must start by clearly defining your investment goal. Decide why you wish to invest in a specific mutual fund scheme, the SIP amount, the top-up amount, and the frequency. Doing so will help you clearly define your investment horizon and goals.
Compare and research SIP mutual funds online: Next, you should compare and research SIP mutual funds using an SIP return calculator. Compare the estimated returns of the funds that interest you and prepare a shortlist.
Finalise the fund and other details: As the next step, you must select the fund that interests you the most among those on your shortlist and choose the “SIP top-up” option while investing.
Gradually increase your SIP top-up amount: Most mutual fund houses allow you to increase your SIP top-up amount. You must keep gradually increasing your SIP top-up amount to keep up with the changing nature of your financial goals.

In summary

SIP top-ups help you regularly increase the value of your SIP contributions over time. You can use them as effective hedges against inflation to protect your financial goals and corpus in the long run.

(DISCLAIMER: The information in this article does not necessarily reflect the views of The Global Hues. We make no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability or completeness of any information in this article.)