step up SIP<\/a> (At 12% return) <\/p>\nAt an 8% step up in Rs 20,000 SIP, the corpus created in 20 years at a 12% annualised return will be Rs 3.18 crore.<\/p>\n
Category Amount (Rs) Invested Amount 1,09,82,871 Estimated Returns 2,08,39,769 Total Value 3,18,22,640
Condition 3<\/p>\n
Break-up of expenses, investment when salary rises by 8% annually<\/p>\n
In the third condition, when the person\u2019s salary of Rs 1 lakh rises by 8%, they increase their monthly and miscellaneous expenses by 5% and 15%, respectively, but increase the SIP amount by 20% annually.<\/p>\n
Category Amount (Rs) SIP Investment 24,000 Home Loan EMI 30,000 Auto Loan EMI 15,000 Household expenses 27,500 Miscellaneous 11,500 Total Expenses 1,08,000
Corpus created in 20 years with 20% annual step up SIP (At 12% return) <\/p>\n
If the person chooses to increase their SIP amount by 20% annually, they can create a corpus of approximately Rs 9.16 crore in 20 years.<\/p>\n
Category Amount (Rs) Invested Amount 4,48,05,120 Estimated Returns 4,67,66,757 Total Value 9,15,71,877
Extra corpus created when person chooses to increase SIP amount by 8% and 20%, respectively <\/p>\n
In the calculation below, you can see that at an 8% annual step up, the extra corpus created compared to when the person chooses not to step up is nearly 73%. If the annual step up is 20%, the extra corpus created is nearly 398% more.<\/p>\n
Condition Initial SIP (Rs) Annual Step-up Corpus (cr) Extra Corpus (cr) % Increase vs Base 1 20,000 0 1.84 \u2014 \u2014 2 20,000 8% 3.18 1.34 72.83% 3 20,000 20% 9.16 7.32 397.83%
While these numbers may appear enticing, a step up SIP is all about discipline, where you increase the investment amount not only for a couple of years, but also for the long term.<\/p>\n
Frequently asked questions (FAQs) about step up SIP<\/p>\n
What are the advantages of a step up SIP compared to simple SIP?<\/p>\n
Mandar Bagul, head of research, Scripbox, told ET Wealth Online the strategy prevents \u2018lifestyle inflation\u2019 (or lifestyle creep) by automatically directing a larger share of incremental income into savings before you have a chance to spend it.<\/p>\n
Giving an example, Bagul says individuals who began a Rs 15,000 SIP in 2015 and opted for a 10% annual step-up are now investing approximately Rs 40,000+ a month and have built a multi-crore portfolio. <\/p>\n
\u201cOver 15\u201320 years, a consistent 10% annual step-up can potentially double your final corpus compared to maintaining a flat SIP amount,\u201d says Bagul.<\/p>\n
Jashan Arora, director, Master Capital Services Limited, told ET Wealth Online that a step up SIP avoids the psychological burden of large lump sum increases. <\/p>\n
\u201cOver time, this strategy improves goal visibility and financial security without materially impacting day-to-day cash flows,\u201d says Arora explaining some of the advantages of the SIP strategy.<\/p>\n
What should be the ideal step up amount for an investor?<\/p>\n
According to Arora, the ideal annual step-up percentage typically ranges between 10% and 20%, depending on income stability and financial goals. <\/p>\n
Arora suggests as a thumb rule, aligning SIP increases with salary increments is a prudent starting point, ensuring sustainability. <\/p>\n
Bagul advises a step up in the range of 5-15% depending on the financial responsibilities of an individual. <\/p>\n
According to Bagul, if your salary rises by 8%, your monthly expenses may rise only by 4\u20135%. If your current salary is Rs 1,00,000 and your current SIP is Rs 10,000, an 8% hike gives you +Rs 8,000. Increasing your SIP by 20% only requires an extra Rs 2,000 per month, leaving you with Rs 6,000 left over from the raise to cover other costs or lifestyle upgrades.<\/p>\n
Should one deploy a higher amount in step up SIP if their salary increment outpaces a rise in their expenses?<\/p>\n
Bagul advises that if you receive a 15% salary hike, but your rent and groceries only increase by 5%, your disposable surplus has increased significantly. This is how you can leverage an 8% salary hike into a 20% SIP jump in the first year.<\/p>\n
As a pro tip, Bagul recommends that in years of high career growth, you should try to allocate 50% of your net increment directly into your SIPs, so that you can retire 5-7 years earlier than peers who only match their salary growth.<\/p>\n
Arora says a higher step up SIP amount enhances portfolio compounding, but he cautions that the increase should be balanced with adequate liquidity, insurance, and contingency reserves.<\/p>\n
What are the common mistakes to be avoided in a step up SIP investments?<\/p>\n
Bagul says an unrealistic high percentage of the step up SIP, ignoring the annual review of investments, lack of investment cap setting and stopping SIP during market volatility are some of severe mistakes in a step up SIP investment. <\/p>\n
Arora points out that overcommitting to high step-up percentages without considering future cash flow variability, ignoring emergency funds and insurance before stepping up, and lack of proper asset allocation are some of the avoidable areas for step up SIP investors.<\/p>\n
Calculator: Groww<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"Personal finance comes with some guidelines on how much you should invest from your monthly income. These rules…\n","protected":false},"author":2,"featured_media":603726,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[45,49,48,133,130542,228301,228300,131,132,7712,228302,17778,228303,228299],"class_list":{"0":"post-603725","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-business","9":"tag-ca","10":"tag-canada","11":"tag-finance","12":"tag-groww","13":"tag-how-to-build-rs-3-crore-retirement-corpus","14":"tag-how-to-build-rs-9-crore-retirement-corpus","15":"tag-personal-finance","16":"tag-personalfinance","17":"tag-retirement-planning","18":"tag-retirement-planning-from-sip-investment","19":"tag-sip","20":"tag-sip-for-retirement-planning","21":"tag-step-up-sip"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/603725","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=603725"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/603725\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/603726"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=603725"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=603725"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=603725"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}