How Step-up SIP in mid-cap funds helps to achieve larger corpus and higher returns than a normal SIP
'Step-up SIP’ helps you to invest more money incrementally, like say when you get an annual salary hike. It converts your SIP from a marathon to a sprint. Under most circumstances, the 'step-up SIP' generates higher returns than the ‘normal SIP’, data shows.
Indian investors are more acquainted with the benefit of systematic investment plans (SIP) to invest in mutual funds (MFs). Now, almost Rs 25,000 crore is the monthly SIP contribution in MFs, which is expected to increase in the future. SIP enables you to regularly invest small sums in MFs to build wealth and reach your financial goals. Learning how to make the most of the SIP facility is crucial if you want to build your corpus in double quick time. MF companies provide a variety of SIP options to help you accumulate a sizeable corpus and achieve your financial objectives at the earliest. One of these is ‘step-up SIP’, which differs marginally from ‘normal SIP’.
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Under ‘normal SIP’, you invest a fixed amount at a regular interval. The ‘step-up SIP’ allows you to gradually increase your contributions, which are in direct proportion to your rising income. It makes use of your rising income to build a larger corpus in a relatively brief span of time. ‘Step-up SIPs’ are especially advantageous for salaried individuals who get regular salary hikes or bonuses. As your salary increases annually, it is always a good idea to increase your contributions once a year. Here, we compare ‘step-up SIP’ with ‘normal SIP’ in the best-performing mid-cap schemes for investments made over the past 10 years. With 10 per cent annual step-up, the SIP has grown significantly, as compared to ‘normal SIP’. Data shows that the ‘step-up SIP’ delivered higher returns than the ‘normal SIP’ under most circumstances (except those in a prolonged bear market). Source: ACEMF
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Motilal Oswal Midcap Fund Fund Managers: Niket Shah, Ajay Khandelwal, Santosh Singh and Rakesh Shetty
