ETMarkets explains: SIP top-up in investing

What does an SIP top-up facility mean?
SIP top-up is a facility wherein an investor who has enrolled for SIP has an option to increase the amount of her/his SIP instalment by a fixed amount or percentage at predefined intervals. This increase can be linked to future income and growth.

What is the difference between conventional sip and sip top-up?
In a normal or conventional SIP, investors cannot increase their contribution during their SIP tenure. If they want to increase it, they have to start a fresh SIP or make lump sum investments. Step-up SIPs allow investors to automate their SIP contribution and increase in line with their expected growth of income.

How does it work?
Using a top-up facility, an investor can increase monthly contribution in an ongoing SIP. For instance, if you invest `10,000 every month in an SIP and wish to add `1,000 every month, at the end of each fiscal/calendar year or financial year or every six months, you can use the top-up facility.

While some fund houses call it top-up, some others call it SIP Booster or SIP step-up facility. Most prominent fund houses offer this facility to investors.

Why do financial planners recommend a sip top-up?

Many retail investors run SIPs to meet their long-term financial goals such as buying a house, children’s education and marriage or retirement.

Financial planners suggest investors should opt for a top-up facility, as it automatically accounts for inflation and takes care of an increase in income like an annual salary hike. Most salaried individuals get an annual hike and hence they suggest investors could top up their SIPs annually. With the top-up facility, this is taken care of.

What challenge does a top-up face?

The basis of a top-up SIP assumes an investor’s income would increase year on year. There can be instances where expenses will rise and income fails to keep pace, or there is a job loss as we have seen in this pandemic, which make it difficult for an investor to top up.