What is mutual fund SIP?

SIP or SIP investment is a way of investing in mutual funds just like bank recurring deposits. You can invest a fixed amount in a mutual fund scheme of your choice at regular frequency (for example – monthly, weekly, fortnightly or even daily). Monthly frequency is the most popular option for SIP mutual fund. You have to submit an auto debit form for the SIP amount to get debited from your bank account. Based on the frequency chosen, the SIP amount gets auto debited from your bank accounts and units are allotted in the mutual fund scheme applying the NAV of that day.

What is SIP top up in mutual funds?

SIP Top-up is a useful facility through which you can increase your SIP instalments at periodic intervals like, yearly or half yearly, etc. To avail this facility, all you have to do is to choose the SIP top up amount or percentage while submitting the SIP application form. 

Let us understand this with an example – You start a monthly SIP of Rs 10,000 in a mutual fund. If you opt for Rs 1,000 annual top-up amount, then your monthly SIP instalment amount will be Rs 11,000, Rs 12,000 and Rs 13,000 respectively after 1st, 2nd and 3rd year and so on.

How Does SIP Top up work?

Taking the above example forward – Monthly SIP of Rs 10,000 and 10% annual top-up. Following is the chart you can refer, to see how much you have invested over the 10 year period –

YearSIP Amount/MonthInvested Amount/ YearTotal investment Amount
Year 110,000                                1,20,0001,20,000
Year 211,000                                1,32,0002,52,000
Year 312,000                                1,44,0003,96,000
Year 413,000                                1,56,0005,52,000
Year 514,000                                1,68,0007,20,000
Year 615,000                                1,80,0009,00,000
Year 716,000                                1,92,00010,92,000
Year 817,000                                2,04,00012,96,000
Year 918,000                                2,16,00015,12,000
Year 1019,000                                2,28,00017,40,000

What is the difference in corpus?

In the above example, we saw in the chart how every year your SIP mutual fund contribution is increasing. Now, let us see, the difference between the SIP investment growth with and without the annual SIP top-up.

Please refer the table below wherein we have assumed 12% XIRR returns over 10 years’ time period for the SIP mutual fund investment. As you can see in the table that with an additional investment of Rs 5.40 lakhs in 10 years, you could create additional corpus of around Rs 12.70 lakhs. That means, you could nearly get Rs 7.3 lakhs extra profit due to the annual SIP top-up.

ParticularsSIPSIP-Top upDifference
Total Investment12,00,00017,40,0005,40,000
Corpus after 10 years23,23,39035,92,47612,69,086

To do the above SIP calculation, we have used a SIP return calculator.

Why should you do SIP Top-up?

SIP Top-ups automatically increases your investments with increase in your income.  Also, SIP top-ups are beneficial for investors, who may not have a big amount to start SIP investment, but can start SIP with a small amount with annual top-up and grow wealth over the years. As seen in the above table, a mutual fund SIP top-up can create greater wealth and you can easily achieve your financial goals faster.