Topic 1 of 9~5 min read

Step-up SIP

Definition

Step-up SIP (also called Top-up SIP) is a variant where the monthly SIP amount is automatically increased by a fixed percentage or fixed amount at regular intervals (usually annually). This mirrors the natural increase in income over time and significantly boosts the final corpus compared to a flat SIP.

In Simple Words

A regular SIP of ₹10,000/month stays at ₹10,000 forever. But your salary increases every year. Step-up SIP captures this growth by automatically increasing your SIP. If you set a 10% annual step-up, your SIP grows from ₹10,000 to ₹11,000 in year 2, ₹12,100 in year 3, and so on. This approach can generate 50-70% more corpus compared to a flat SIP over 20+ years.

Real-Life Scenario

Arjun starts a ₹10,000/month SIP with 10% annual step-up at 12% returns for 20 years: Flat SIP Result: Total invested: ₹24,00,000 Final value: ₹99,91,479 Step-up SIP Result: Total invested: ₹68,73,000 Final value: ₹2,20,36,892 The step-up SIP generated ₹1.20 Crore MORE wealth. While Arjun invested ₹44.73L more, the extra returns were ₹75.72L — the step-up more than paid for itself through compounding on the increased amounts.

Key Points to Remember

Step-up SIP increases investment amount periodically (usually annually)

Aligns with natural salary growth trajectory

Can boost final corpus by 50-70% vs flat SIP over 20 years

Typical step-up: 10-15% annual increase

Available through most AMCs and mutual fund platforms

Can be amount-based (₹1,000 increase/year) or percentage-based (10%/year)

Percentage-based step-up compounds better over long periods

Ideal for young professionals expecting regular career growth

Formula

Step-Up SIP calculation is iterative:
For each year y:
  Monthly amount = Initial × (1 + stepUp%)^(y-1)
  Accumulate 12 monthly contributions with monthly returns
  Carry forward the corpus to next year

Numerical Example

₹10,000/month SIP with 10% annual step-up at 12% return:

Year 1: ₹10,000/month → ₹1,28,093 corpus
Year 5: ₹14,641/month → ₹10,03,784 corpus
Year 10: ₹23,579/month → ₹36,97,283 corpus
Year 15: ₹37,975/month → ₹98,51,203 corpus
Year 20: ₹61,159/month → ₹2,20,36,892 corpus

Total invested over 20 years: ₹68,73,000
Total value: ₹2,20,36,892
Wealth multiplier: 3.2x

Frequently Asked Questions

Test Your Knowledge

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By approximately how much can Step-up SIP boost final corpus vs flat SIP over 20 years?

Summary Notes

Step-up SIP is one of the most powerful SIP optimization strategies

Match step-up percentage to your expected salary growth

Even a modest 10% annual step-up creates dramatic long-term impact

Start step-up SIP early to maximize the compounding benefit

Review and adjust step-up rate based on actual income growth