Now that you know what SIP is, I want to talk about a hack to create much more wealth than you would have thought. If you haven’t read my SIP FAQs: Clearing the Confusion for New Investors, you should. On with the topic!
Let us say you are doing an SIP of ₹24,000 per year or ₹2000 per month. If you start on your 20th birthday and keep doing it without any break or change in amount, you will have invested ₹9,60,000 in total. Assuming a rate of return of 12% per annum, your total corpus would grow to ₹2,06,19,417. For simplicity’s sake, let’s call it, 2 Cr.
But you won’t work for the same salary for 40 years right? Your business will grow in 40 years even if you are not salaried. So naturally, you should be increasing your SIP amount as well. We call this step-up SIP. Your SIP can be increased by a percentage of 5%, 8%, 10%, or by an amount of 1000, 5000, or 10000. To illustrate the power of step-up SIPs I am going to take an example.
| Monthly SIP | ₹2,000 |
| Duration | 40 years |
| SIP Step up | 5% |
| Total Invested amount | ~29 lac |
| Total Corpus | ~3.30 crores |
| Total Corpus without Step-Up | ~2 crores |
| Additional Returns from Step Up | ~1.3 crores |
As you can see, your final grows a lot more if you step up your investments. Let us put this another way. Corpus by doing a regular SIP of 2000 and 5% step up of 1300 will yield roughly the same returns at the end of 40 years.
This is the power of stepping up the SIP.
Want to include it in your financial plan? Reach out to us here!