Everything you need to know about SIP Top-up

What is SIP (Systematic Investment Plan) Top-up facility? How does it differ from a SIP offered by a mutual fund house?
When an investor registers a normal SIP, he chooses a tenure for it and cannot increase his contribution amount. If he desires to increase it, he has to start a new SIP or put in lump sum money. To solve this problem, fund houses have launched top-up SIPs to allow investors automate their SIP contribution and increase it in line with their expected growth of income. Using the top-up facility, an investor who has a SIP in a mutual fund scheme can increase it by a fixed amount or percentage at predefined intervals. Most investors opt for a half-yearly or annual top ups. Generally, the amount to be topped up is based on the likely growth in future income.

How does a SIP Top-up work?
An investor with a SIP of `10,000 every month looking to increase it by `1,000 at the end of every calendar year or financial year or every six months can use the top-up facility. Once registered for this, he will contribute `11,000 per month in the second year, `12,000 in the third year and so on. This facility is offered by most fund houses and third-party investment platforms. Investors can opt for this facility while registering their SIPs or even at a later date as and when they wish to top up.


Why do investors need to Top up their SIPs?
Many retail investors run SIPs to meet their long-term financial goals such as kids education, marriage, buying property or for retirement. The top-up facility is helpful as it automatically accounts for inflation and takes care of an increase in income, like an annual salary hike. Many salaried individuals get an annual hike and could top up their SIPs annually. It is cumbersome to start a new SIP every year when you get a salary hike and hence top-up SIPs automate this process, say financial advisors

Any challenge or disadvantage of a Top-up?
The basic assumption of a top-up SIP is that an investor’s income will increase year on year. However, in times of high inflation, there could be instances where expenses will rise faster than income, or there could be other disruptions or loss of income, which could make it difficult for an investor to top up his SIP.