Q: What is step-up SIP? – Utkarsh
A: Systematic Investment Plan (SIP) is quite popular among investors. You can start investing in mutual fund through SIPs with a very small amount. It allows you the benefit of rupee cost averaging while you invest for a long-term.
However, the amount invested is fixed in regular SIP products. So, if you have started an SIP of Rs. 1,000 per month, the same amount will be invested monthly till the end of the investment tenure. That being said, if you expect your income to increase by a certain percentage every year and don’t want to go for another investment instrument, there is a unique SIP variant available in the market which is called a step-up SIP.
Under the step-up SIP plan, you can increase the investment amount by a certain percentage after a regular interval i.e. every 6 months or every year. You also get the option to restrict the upper ceiling of investment beyond which the SIP amount won’t increase. However, it is important to point out here that you cannot convert a regular SIP into step-up SIP and you have to opt for the step-up option at the time of starting the SIP investment.
Step-up SIP is a very good tool to increase the investment amount automatically when you know your income is set to increase in a fixed interval. It can help you avoid unnecessary expenses by directing your increased income to SIP investments.
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