Compare fixed and step-up SIPs to find what suits you best. Learn how step-up SIPs can boost returns with tools like SIP and lumpsum calculators.
SIP
If you are a beginner a Systematic Investment Plan can be an affordable and convenient way to start your investment journey. But once you are well-equipped with the ins-and-outs of SIPs, a step-up SIP can help your investments go the extra mile.
Making the choice between an SIP plan or a step-up SIP plan can be easily navigated when you list down the features of each and draw a comparison. To simplify this process, you can use an SIP calculator with step-up to understand the difference between fixed and step-up SIP.
Let’s break down the two in easy terms to help you make an informed decision.
What is a fixed SIP?
As the name suggests, a fixed SIP is the process of investing a fixed amount in regular intervals. For instance, you may commit to investing Rs. 2,000 a month for five years. Your SIP instalment will stay constant at Rs. 2,000 throughout these five years.
A fixed SIP can be an easy entry point into the world of mutual funds. Its affordability can make it a suitable fit for those who have budgetary constraints. It also encourages disciplined investing, no matter the market conditions.
However, there is one limitation with a fixed SIP - your contribution stays the same even if your income grows.
What is a step-up SIP?
A step-up SIP is an easy and convenient option for you to keep up with the market conditions, inflation and your increasing income. By increasing your SIP contribution by a small percentage at regular intervals, you can potentially earn higher returns.
To elucidate, think of it like this. You begin by investing Rs. 5,000 a month for the first couple of years. Then, you get a promotion, which means more money in hand. Instead of losing track of the additional income your way, you decide to add another Rs. 1,000 to your investments. The subsequent year, your investment can increase by another 10%, and so on. Over time, these small increments can result in a substantial increase in your principal amount. This, in turn, can increase your potential returns.
Instead of doing the math yourself, you can always use calculators with step-up to understand how the investing process works and will look like for you.
This snowballing effect of your step-up SIP can help enhance the power of compounding on your investment.
Remember this, a step-up SIP starts just like a fixed SIP. You choose a mutual fund, identify an investment horizon and choose an investment amount. Then,
you decide the step-up rate and the frequency at the start of the tenure. For instance, many people choose annual step ups in line with their appraisal cycle.
A step-up SIP calculator is just the tool you need to understand the key differences in your investment plans whether you choose a fixed SIP plan or a step-up SIP plan.
Why should you do a step-up SIP plan?
To understand the relevance of incorporating a step-up SIP plan in your investment portfolio you need to think of the following factors:
- It helps prepare you for inflation. As the costs of living rise, so can your investment.
- With a step-up SIP plan, you gradually increase your principal while mitigating the impact of market volatility through rupee cost averaging.
- As your income increases, you automatically increase your savings too by investing a little more each year.
- It is flexible, affordable and helps you enhance your investments significantly over time without making a large change upfront.
While fixed SIP and step-up SIP plans can be suitable options for your regular income, there may be times when you have a little extra money that you can save. Here’s where a lumpsum mutual fund calculator can help you.
How does a lumpsum mutual fund calculator work?
Think of the last time you received a bonus at work or cash at some special occasion. With extra money in hand, we always run the risk of splurging it at the wrong place. Instead, what might deem fit in a scenario is a lumpsum mutual fund investment. To help understand the benefits of this, you can use tools like a lumpsum mutual fund calculator. For instance, investing your bonus of Rs. 1 lakh apart from of your fixed or step-up SIP plan potentially enrich your investment portfolio.
Conclusion
A step-up SIP can potentially accelerate your path to financial wellness over time. Complementing your SIPs with occasional lumpsum investments can further enhance growth potential. With the help of the tools present at your disposal like step-up SIP calculator and the lumpsum mutual fund calculator, you can make well-informed decisions about your investments. So, play out some scenarios with a calculator, plan your finances, and start your investment journey today.
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