Step-Up SIP vs Regular SIP: Which Is Better?

When it comes to investing in mutual funds, a Systematic Investment Plan (SIP) is one of the popular choices. It allows you to invest a fixed amount every month, helping you build wealth slowly and steadily. But now, there is also something called a Step-Up SIP, which works a little differently.

So, which one is better for your financial goals – a regular SIP or a step-up SIP? Let’s understand both and compare them in simple terms.

What is a regular SIP?

A regular SIP is simple - You invest the same amount every month into your chosen mutual fund. For example, if you start with Rs. 5,000 per month, you will keep investing Rs. 5,000 each month for as long as you want.

The main benefit of a regular SIP is consistency. You know exactly how much will be deducted each month, making it easier to plan your budget. Over time, your money grows because of the power of compounding, where your returns start generating more returns.

What is a step-up SIP?

A step-up SIP is like a regular SIP, but with a twist –  you increase your monthly investment amount every year by a fixed percentage or a fixed amount.

For example:

You start with Rs. 5,000 per month.

Next year, you increase it by Rs. 500.

So, in the second year, you invest Rs. 5,500 per month.

In the third year, Rs. 6,000 per month, and so on.

You can also choose to increase by a percentage, say 10% each year.

The idea behind a step-up SIP is simple – as your income grows, you invest more. This helps you reach your goals faster without feeling the pinch in the early years. A step up SIP calculator can help you figure out how much you should increase your investment each year to reach your target amount.

Why compare step-up SIP and regular SIP?

Both regular SIP and step-up SIP work towards the same goal of building wealth over time through disciplined investing. The difference lies in how much you invest each year and how fast your money grows.

Advertisment

Let’s compare them on some key points.

1. Investment growth

Regular SIP: Your investment amount stays the same, so your total invested money grows in a straight line.

Step-up SIP: Your investment amount increases every year, so your invested money grows faster over time.

Because you are investing more in later years, your wealth creation potential is higher with a step-up SIP.

2. Affordability

Regular SIP: Easy to commit to because the amount doesn’t change. Good for people with stable but limited income.

Step-up SIP: Starts small but gradually increases, matching your income growth. This makes it easier to handle bigger investments in the future without stressing your current budget.

3. Reaching goals faster

If you have big financial goals like buying a house, funding your child’s education, or retiring early, a step-up SIP can help you reach them faster because you are investing more each year.

Advertisment

A mutual fund SIP plan combined with a step-up feature can be a powerful way to grow your investments in line with your income.

4. Mitigating impact of inflation

Inflation reduces the value of money over time. A regular SIP does not account for inflation because the amount stays fixed. A step-up SIP, on the other hand, increases your investment every year, which may help you keep pace with rising costs.

Which one should you choose?

The choice between a regular SIP and a step-up SIP depends on your income pattern, financial goals, and comfort level.

You might prefer a regular SIP if:

• You have a fixed budget and want a set, predictable investment.
• Your income is stable but doesn’t increase much.
• You are just starting out and want to build the habit of investing.

You might prefer a step-up SIP if:

• Your income increases regularly (e.g., annual salary hikes).
• You want to reach your goals faster.
• You want your investments to grow in line with inflation.

How to plan a step-up SIP

Planning is key for a successful step-up SIP. Here’s how you can do it:

• Set your goal – Know exactly how much money you will need and when you will need it.
• Choose a suitable fund – Pick a mutual fund SIP plan that matches your risk level and time horizon.
• Decide the step-up amount – It can be a fixed amount (Rs.500, Rs.1,000, etc.) or a percentage (5%, 10%, etc.) increase each year.
• Use a step up SIP Calculator – This tool can show you how your investment will grow if you increase it every year.
• Stay consistent – Whether it’s a regular SIP or a step-up SIP, the key to success is to invest regularly without stopping.

Example: Step-up SIP vs regular SIP

Let’s take a quick example to see the difference:

• Regular SIP: Rs. 5,000 per month for 10 years at 12% annual return - around Rs. 11.6 lakh corpus.
• Step-Up SIP: Rs. 5,000 starting amount, increasing by 10% every year for 10 years at 12% annual return - around ₹15.6 lakh corpus.

That’s a big difference, simply because you invested a little more each year.

Example for illustrative purposes only.

Both step-up SIP and regular SIP have their own benefits. A regular SIP can be suitable for beginners and people with a fixed budget. A step-up SIP can be suitable for those whose income grows over time and who want to accelerate their wealth creation.

If you’re not sure which one to choose, you can even combine them – start with a regular SIP and switch to a step-up SIP later when your income allows. Use a step up SIP calculator to see the potential growth and plan your mutual fund SIP plan better.

Remember, the most important step is to start investing and stay committed to your plan. Whether you choose regular or step-up, the discipline of SIP will help you build a secure financial future.

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

 This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.

The content herein has been prepared on the basis of publicly available information believed to be reliable. However, Bajaj Finserv Asset Management Ltd. does not guarantee the accuracy of such information, assure its completeness or warrant such information will not be changed. The tax information (if any) in this article is based on current laws and is subject to change. Please consult a tax professional or refer to the latest regulations for up-to-date information.