Rs 6,000 A Month To Rs 10 Crore Corpus: What Step-Up SIPs Can Really Do for You

Many people cannot afford to start investing large amounts when they first begin earning at a young age. So, they wait with the hope that once their income rises, they will finally start investing. But what many don’t realise is that the longer they delay, the higher their opportunity cost becomes.

So, what should young earners, who aren’t making much and cannot invest big amounts to build a meaningful corpus in crores, actually do? Well, they can start small and gradually increase their investments as their income grows. A more effective approach is to increase their investments in a disciplined and systematic manner.

How Much is the Cost of Delay?

Kotak Mutual Fund did a study where it calculated how much of a difference a delay of two or five years can make to an investor’s final corpus. The study assumed three investors. Investor A invested Rs 5,000 per month via a systematic investment plan (SIP) in mutual funds for 20 years. Investor B also invested the same amount every month in the same fund, but she started two years after Investor A. So, she invested for 18 years. And, investor C started five years late, so she invested for 15 years.

According to the study, Investor A, who invested for 20 years, made a corpus of Rs 45.99 lakh. Whereas, Investor B, who delayed by two years, built a corpus worth Rs 35.58 lakh, Rs 10.41 lakh lower than the corpus built by Investor A.
A five-year delay caused a lower corpus for Investor C. His final corpus was Rs 23.77 lakh lower at Rs 22.22 lakh as compared to the corpus built by Investor A (Rs 45.99 lakh).

So, even with the same monthly contribution, the investor who started earlier ended up with a significantly higher corpus, simply because she gave her investments two more years to grow.

Start Investing Small With Step-Up SIP

Mutual funds allow investing as low as Rs 500 through SIPs. Some fund houses offer even smaller ticket-size SIPs starting at just Rs 250 per month.

So, instead of waiting, investors can begin by investing a lower sum and keep on increasing the investment amount on a regular basis, say every year by 5 per cent, 10 per cent, or even higher. Alternatively, you can increase your investments by a fixed amount every year. This is the concept of Step-Up SIP.

A Step-Up SIP (also known as a Top-Up SIP) is a feature that lets you automatically increase your SIP contributions at regular intervals—typically every year. Instead of sticking to a fixed amount each month, your SIP contribution gradually increases by a pre-set percentage or amount over time. For example, if you start with an SIP of Rs 5,000 and set a step-up of Rs 500 annually, your SIP will increase to Rs 5,500 in the second year, Rs 6,000 in the third year, and so on.

Many mutual fund houses, including big names like SBI Mutual Fund, HDFC Mutual Fund, Mirae Asset AMC, Kotak Mutual Fund, and others, offer this option. It is also called Top-Up SIP.

How Much Difference Can a Step-Up SIP Make to Your Corpus?

Just like a disciplined approach to investing can help you navigate the market ups and downs and help you build a meaningful corpus over the long term, a disciplined top-up of your SIP investment amount can also help you make a significantly higher corpus over time.

Suppose an investor starts investing Rs 6,000 per month at a young age of 25 years. Assuming a 12 per cent return, he can make a corpus of Rs 28.55 lakh over 15 years.

But if he increases his SIP amount by 10 per cent every year. So, in Year 1, he invests Rs 6,000, Year 2– Rs 6,600, Year 3– Rs 7,260, and so on, his final corpus at the end of 15 years would swell to almost Rs 50 lakh.

If the same investor continues until retirement, that is, invests for 35 years (from Age 25 till Age 60), his corpus without any top-up would become Rs 3.30 crore. And if he uses an annual 10 per cent step-up, he would be able to build a significantly higher corpus of Rs 9.46 crore.

Step-Up SIP is no magic. But if an investor plans his finances in a proactive manner with disciplined planning and timely increases in contributions, it can quietly transform small beginnings into a corpus truly big enough to matter.