Received an Increment? Step-up Your SIPs

Posted On Wednesday, Jun 01, 2022

A Systematic Investment Plan (SIP) is a great way to invest in mutual fund. When you invest in mutual funds via SIP, you may also increase your SIP contribution by a fixed amount or percentage after a specified period. This facility, known as Step-up SIP or Top-up SIP, provides an opportunity to boost your investment amount to create solid wealth over the long term.

For instance, let’s assume that you have registered for a monthly SIP of Rs 5,000 for a 10-year period and later on try to step-up the SIP at an annual frequency, say by Rs 500. In the first year, the SIP instalment will be Rs 5,000. For the second year, each monthly instalment will be increased by Rs 500 to Rs 5,500, and in the third year, it will go up to Rs 6,000.

An annual increment and/or bonus is the best time to step-up SIP as you may have a higher investible surplus. As Warren Buffet once said, “Do not save what is left after spending, but spend what is left after saving”.

So, if your income has increased by 10%, you can consider a step-up of a similar margin. Your expenses may not necessarily increase with the additional income, which will allow you to make the additional investment.

Here are the benefits of stepping-up your SIPs in tandem with annual increment:

1) Facilitates building a bigger corpus

Stepping-up your SIP instalment in line with your annual increment adds to the power of compounding. The increased contributions can helps you to build a required corpus to accomplish your future financial goals. Even a small increase in the SIP instalment amount can make a big difference in the long term.

2) Helps to deal with inflation

Earning an effective real rate of return, or to put it simply, return on investment after adjusting for inflation in the economy, is an important factor to be considered while investing. Since inflation increases every year, it erodes the purchasing power of your hard-earned money. The goal amount that seems substantial today will not have the same value a few years from now. Therefore, increasing monthly contribution every year through step-up SIP helps to an overall increase in wealth, which in turn helps you to beat inflation. It will help to earn a real return that will potentially helps to achieve financial goals comfortably.

3) Achieve the envisioned goals faster

Increasing your SIP contribution every year can help you to achieve your financial goals faster than the pre-set time horizon.. This will also depend on various conditions such as, by how much amount/percentage investor decide to step up SIP instalment, the type of schemes , the return expectation, the amount of investment and actual market returns during the period.

4) Ensures focused planning

Instead of investing in new mutual fund schemes every time you want to increase your investment, you can consider stepping-up SIP in the existing schemes in your portfolio that may be doing well. This makes it easier to manage and monitor the progress of your portfolio and prevents over-diversification, which is necessary to optimise wealth. The illustrative table below explains how different levels of a percentage hike in monthly SIP every year can help to grow the wealth over 10 years. We have considered a starting monthly SIP instalment of Rs 5,000 in the first year and the annual rate of return is assumed at 10%.

Table: How stepping-up SIP every year enriches the power of compounding...

% annual increase in SIPAmount Invested (in Rs)Corpus at the end of 10 years (in Rs)
57,35,00013,06, 864

(Note: For illustration purposes only) Investments through SIP is subject to market risk and do not assure a profit or returns or protection against a loss in downturn market.

As we can see in the table above, hike in the SIP contributions even by a small percentage every year, the amount at the end of tenure will be higher than the fixed SIP amount.

If uncertainty strikes and you are undergoing financial stress, you need not discontinue your SIP. Some mutual fund schemes have the option to pause SIP for a maximum period of three months. By using this option, you will not only continue with your existing accumulated corpus but also can restart the SIP investments at a later date.

Now that you have learned the importance of stepping-up your SIP, it is important to note the following points to get the best out of your investment:

• Select mutual fund schemes that align with your financial goals, risk profile, and investment horizon

• Invest the right amount by quantifying your goals and assessing the time horizon before the goal befalls

• Continue your SIP investment regularly, irrespective of the market conditions, until your goal is achieved

It is important to have a long-term investment horizon of five to seven years or more to get the maximum benefit of your SIP investment. During certain periods SIP returns may be a few percentage points lower compared to a lumpsum investment, but over the long run, it has potential to to meet your financial goals.

If you are nearing your goal horizon, gradually reduce exposure in equity mutual funds to invest in a more stable and less risky investment avenue, such as safely managed debt mutual funds and bank fixed deposits. Quantum Mutual Fund has the daily SIP option that gives you the option to invest as low as Rs. 100 daily for its equity schemes and gold savings scheme. Start an SIP in Quantum Mutual Fund today!

FundDaily SIP
Quantum India ESG Equity Fund
Quantum Long Term Equity Value Fund
Quantum Equity Fund of Funds
Quantum Liquid Fund
Quantum Dynamic Bond Fund
Quantum Gold Savings Fund
Quantum Multi Asset Fund of Funds

Build your financial goals by stepping up your SIP

Before one can start investing, they must set aside at least 12 months of their monthly expenses for emergencies or expenses in a savings bank account or Quantum liquid fund.

Let’s consider an illustration of an investor who has a goal of building a corpus of Rs.50,00,000 for his child’s education. Assuming that the investor has already taken care of his emergency fund, the investor can then divide his investments between equity and gold.

The investor may need to invest ₹ an SIP of Rs. 24,408.7 assuming a rate of return of 10% CAGR. In the 20:80 ratio, the SIP may be allocated as follows to build a diversified portfolio:

Gold 20%Equity 80%
Please note the above is a suggested fund allocation only and not as an investment advice / recommendation

Thereafter, you may step up your individual SIPs to build your investment and reach your goals faster.

Product Labeling

Name of the Scheme & Tier I BenchmarkThis product is suitable for investors who are seeking*Risk-o-meter of Scheme
Quantum Long Term Equity Value Fund

An Open Ended Equity Scheme following a Value Investment Strategy.

• Long term capital appreciation

• Invests primarily in equity and equity related securities of companies in S&P BSE 200 index
Quantum India ESG Equity Fund
Investors understand that their principal will be at Very High Risk
Quantum India ESG Equity Fund

An Open ended equity scheme investing in companies following Environment, Social and Governance (ESG) theme
• Long term capital appreciation

• Invests in shares of companies that meet Quantum's Environment, Social, Governance (ESG) criteria.
Quantum Gold Savings Fund
Investors understand that their principal will be at High Risk
Quantum Equity Fund of Funds

An Open Ended Fund of Funds scheme Investing in Open Ended Diversified Equity Schemes of Mutual Funds

• Long term capital appreciation

• Investments in portfolio of open-ended diversified equity schemes of mutual funds registered with SEBI whose underlying investments are in equity and equity related securities of diversified companies
Quantum Gold Savings Fund
Investors understand that their principal will be at High Risk
Quantum Gold Savings Fund

An Open Ended Fund of Fund Scheme Investing in Quantum Gold Fund

• Long term returns

• Investments in units of Quantum Gold Fund – Exchange Traded Fund whose underlying investments are in physical gold
Quantum Liquid Fund
Investors understand that their principal will be at High Risk
Quantum Multi Asset Fund of Funds

An Open Ended Fund of Funds Scheme Investing in schemes of Quantum Mutual Fund

• Long term capital appreciation and current income

• Investments in portfolio of schemes of Quantum Mutual Fund whose underlying investments are in equity , debt / money market instruments and gold
Quantum Liquid Fund
Investors understand that their principal will be at Moderately High Risk
Quantum Liquid Fund

An Open-ended Liquid Scheme. A relatively low interest rate risk and relatively low credit risk.

• Income over the short term

• Investments in debt / money market instruments
Quantum Liquid Fund
Investors understand that their principal will be at Low Risk
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
The Risk Level of the Scheme in scheme Risk O Meter is basis it's portfolio as on April 30, 2022.
The Risk Level of the Tier I Benchmark & Tier II Benchmark in the Risk O Meter is basis it's constituents as on April 30, 2022

Potential Risk Class Matrix - Quantum Liquid Fund
Credit Risk →Relatively LowModerate (Class B)Relatively High (Class C)
Interest Rate Risk↓
Relatively Low (Class I)A-I  
Moderate (Class II)   
Relatively High (Class III)   

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

Mutual fund investments are subject to market risks read all scheme related documents carefully.

Please visit – to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

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