If you have invested in a mutual fund scheme earlier, you must already know that one of the most important steps that you must take before investing in a fund is to fix your investment objectives. An investment objective could be saving for yourretirement, planning for a wedding in the family, or taking a vacation. However, do you account for the changing nature of your investment goals while investing? A top-up SIPinvestment helps you do that.
What is a top-up SIP investment, and how does it compare with lump sum investments?
The terms “SIP investments” and “lump sum investments” are a little ambiguous, so you must first know what the terms “SIP” and “lump sum” stand for. Systematic investment plans (SIPs) and lump sums are two modes of investment. SIPs help you regularly invest money in a mutual fund scheme, whereas the lump sum mode helps you invest in a scheme all at once. A “top-up SIP” investment, on the other hand, helps you gradually increase your SIP amount on a monthly basis (by a fixed amount or percentage) to help you reach your investment goals.
Why is top-up SIP important and what are its advantages?
A top-up SIP is an important SIP contribution towards your mutual fund. The value of your investment objectives keepchanging year-on-year due to increasing inflation and rising prices. To keep up with rising prices, you must consider gradually increasing your SIP contributions via top-up SIP contributions. Here is how you can do that –
Should you opt for a lump sum investment or a top-up SIP investment?
Whether or not you must choose a top-up SIP investment completely depends on your risk appetite, investment horizon, investment objectives and returns-related expectations. It also depends on your liquidity-related expectations. If you wish to consistently increase your SIP contributions by a fixed percentage or amount, you must opt for a top-up SIP investment.
You can choose a top-up SIP investment to adapt to the changing nature of your long-term SIP investments over time. In order tostart a top-up SIP, you should check a top-up SIP calculator online, enter the relevant fields, fix a “step-up percentage or amount” that helps you step-up your SIP contributions month-on-month, and start contributing to your mutual fund scheme via top-up SIPs. Lump sum investments might not be as effective when it comes to making changes to your long-term investments in accordance with the rising inflation the way top-up SIPs do.