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Step-Up SIP Returns Calculation: Many people start investing in mutual funds but forget to increase their SIP amount over the years. If you implement a step-up of just ₹1,000 annually in your monthly SIP, you could accumulate an additional corpus of ₹1.18 crore over 25 years compared to a fixed SIP.

A recent analysis by WhiteOak Capital highlights how a small annual increase in investments—aligned with rising income—can exponentially boost your wealth over the long term.

Fixed SIP vs. Step-Up SIP: Understanding the Numbers

If you invest a fixed ₹10,000 per month via SIP without ever changing the amount, your corpus and returns after 25 years would look like this:

Fixed ₹10,000 SIP: Your total investment over 25 years would be ₹30 lakh, growing to approximately ₹2.30 crore.

₹1,000 Top-up SIP: If you start with ₹10,000 and increase the amount by ₹1,000 each year, your total investment would be ₹66 lakh, but your final corpus would reach ₹3.49 crore.

Net Benefit: An annual increase of just ₹1,000 yields an additional ₹1.18 crore in returns.

How does the ₹1,000 annual top-up work?

This strategy does not require a large lump-sum investment; instead, you increase the amount incrementally as your salary grows:

First year: ₹10,000 per month
Second year: ₹11,000 per month
Third year: ₹12,000 per month
By the 25th year: Your monthly SIP would reach ₹34,000.
Low at the start, but the true magic of compounding shines in the later years.

The real benefit of a step-up SIP becomes increasingly apparent as time passes. Let’s see how the gap between a fixed SIP and a top-up SIP widens over the years:

After 5 years: The difference between the two is just ₹1.25 lakh.
After 10 years: The additional wealth grows to ₹7.38 lakh.
After 15 years: The benefit rises to ₹22.59 lakh.
After 20 years: The difference reaches ₹53.47 lakh.
After 25 years: The gap crosses the ₹1 crore mark, reaching ₹1.18 crore.
Interestingly, the investor contributed a total of only ₹36 lakh in additional funds over 25 years, yet gained ₹1.18 crore in final wealth. This means that out of the ₹1.18 crore in additional wealth, ₹82.48 lakh came solely from the power of compounding.

Why does the XIRR of a top-up SIP appear slightly lower?

Investors are often surprised to see that the XIRR of a top-up SIP (13.34%) appears slightly lower than that of a fixed SIP (13.81%).

According to experts, this certainly does not mean the returns are lower. In a top-up SIP, larger amounts are invested during the later years, giving that extra capital less time to compound. However, because the total principal invested is significantly higher, the final corpus accumulated becomes much larger.

Key Takeaway for Investors

As our income and inflation rise, our expenses increase, yet we often forget to increase our SIP contributions. A 'Step-up SIP' automatically aligns your investments with your income growth. If you wish to build wealth faster, make sure to opt for an annual step-up on your existing SIP today.

Disclaimer: This content has been sourced and edited from Money Control. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.