Say, you start investing in a Systematic Investment Plan (SIP) every month to build a healthy retirement corpus. To your delight, you get a decent salary hike or make some extra income and wish to invest the additional amount instead of spending it every month. Now, a conventional option would be to start a fresh Systematic Investment Plan.
Thankfully, top-up or step-up facilities are available to let you increase your investment contribution with an increase in income. This way, you can fully leverage the power of the compounding effect.
Wondering how to increase SIP amount in mutual funds? Keep reading.
First, consider a few important things
- The top-up amount is predefined over a fixed period. As defined by your scheme, it could either be a percentage of the existing amount or multiples of a minimum amount.
- The frequency cap is typically half-yearly or yearly.
- You can set the upper limit for top-up capping, either in terms of the month, year, or amount, after which the top-up facility will stop.
- Once you sign up for this facility, there’s no turning back. If, down the line, you cannot afford to pay the periodic increases, the only option is to cancel the plan and start afresh.
Additional Read: Why are SIPs an Ideal Choice for the First-time Investor?
Here’s how to increase mutual fund SIP amount
- First, check with your mutual fund house if it offers a mutual fund top-up facility.
- Do remember that a lot of mutual fund houses grant you the option of a top-up at the time of opening a new SIP. So, in case you don’t get such an option midway, you can start a new scheme and apply for a top-up before you pay your first instalment.
- All mutual fund houses have a standard application form and an SIP form. In the latter, fill in your basic scheme details and opt for a top-up option found at the bottom of the page.
- You must also give an application to your bank asking them to transfer the increased amount to the mutual fund house, in case you had opted for payment automation.
A few tips to keep in mind
- The top-up facility works best when you use it to build allocation for a preferred asset class over time. This way, you can reach your desired asset allocation levels quickly and without any cost of acquisition of mutual fundunits.
- Avoid using the top-up facility as a tactical strategy to gain from falls in the equity market. The strategy may not work efficiently as a top-up is allowed once every six months or a year, depending upon the mutual fund.
Additional Read: Timed lump sums vs SIPs: What works better?
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