Investment Planning: Stepping up your Investments with Top-Up in SIPs

This article and the educative session it is based on is a part of Femvest 2.0, and is a women’s financial empowerment initiative in collaboration with Mirae Asset. In this article, we hear from an industry stalwart on simple ways of making money work for us and how women can step out to explore the world of mutual funds.

The Mutual Funds industry has caught the fancy of young and old investors alike in India. With Assets Under Management (AUM) witnessing a 4-fold increase in the last ten years, and the number of new demat accounts more than doubling in the last financial year, it is indeed a heady time for mutual fund investors.

Mr. Swarup Mohanty is the Chief Executive Officer of Mirae Asset Investment Managers (India) Pvt. Ltd. With his vast experience of more than 27 years in Finance, Mr. Mohanty shared his valuable insights on Investment Planning with SIPs on Day 1 of Femvest 2022.

Here are some of the excerpts from his address to women on International Women’s Day 2022.

Reflecting the prevailing trends of the Mutual Fund industry and the pulse of the market, Mr. Mohanty observed: “SIP is currently the go-to investment behavior and Asset managers have witnessed incredible inflows to the tune of 870cr SIPs booked every month.”

SIP is currently the go-to investment behavior and Asset managers have witnessed incredible inflows to the tune of 870cr SIPs booked every month.

He went on to mention that women were prudent investors and hastening the wealth creation process is one of the contemporary topics in the post-Covid world, amidst the Russia Ukraine war-time market fluctuations. It is high time women too step-up in their SIPs to make it a definite tool in their wealth management and creation process.

What is Systematic Investment Plan (SIP)

Mutual fund Systematic Investment Plan (SIP) is an effective and convenient way to create wealth in the long term. By contributing a fixed amount at a fixed frequency – usually monthly – in mutual funds, you can smoothen out price volatility in the stock market.

This is done by what is known as ‘Rupee Cost Averaging’ of the purchase price of your mutual fund investment, or the NAV. The NAV, or Net Asset Value, is the purchase price of 1 unit of the mutual fund scheme, which keeps fluctuating as dictated by market forces of demand and supply.

Rupee cost averaging is the reduction in the average purchase price over a period of time as you keep investing periodically, compared to a lump sum investment done at one go.

No. of units purchased = (Fixed monthly SIP amount) / (NAV of scheme)

When you invest a fixed amount every month in a mutual fund scheme, if the NAV goes down, you end up buying more units of the scheme, thereby bringing down your average purchase price. If the NAV goes up, you end up buying lesser units, thereby preventing you from buying more of expensive units.

What is Top up SIP

With the times, your income levels or cash in hand may change due to annual increase in salaries or business income etc. Therefore, you may have surplus money available to invest.

A SIP Top-up allows you to increase the SIP amount annually. The SIP top-up amount can be specified as a percentage or a fixed amount every year over the original SIP amount.

SIP type	Amount	Annual Top up %	SIP Tenure	Total Amount Invested	Expected Rate of Return	Corpus Value at end of tenure
Normal	Rs. 20,000	0	20 years	Rs. 48.0 lakhs	11% p.a.	Rs. 1.75 crores
Top up	Rs. 20,000	10	20 years	Rs. 93.6 lakhs	11% p.a.	Rs. 2.82 crores

Advantages of stepping up in SIPs

Mr. Mohanty was of the opinion that recognizing SIPs as a cash flow solution to investing monthly ensures a disciplined market participation with an ownership in the markets on a regular basis.

Top-up in the SIP scoops up your investments by bringing them in line with your cost of living, assisting you in planning for your financial goals.

Secondly, serving as a long term basis through rupee cost averaging, it offers the opportunity as well as the ability to own the debt or equity market.

“Top-up in the SIP scoops up your investments by bringing them in line with your cost of living, assisting you in planning for your financial goals,” he advised.

Top-up mechanism to reach your financial goals faster

(1) Useful when current Surplus is low: In order to convert SIP journey into a definite wealth creation tool, one way is to top it up with an affordable surplus say INR 500 or 1000 in the existing SIP at the end of every year on a regular basis.

(2) Hasten your wealth creation in emergencies: In times of abrupt market fluctuations like the current war-induced crisis, one can inculcate a habit of top-up with a lump sum from the beginning of investment journey to guard against such market fluctuations. Your participation in markets in such times can bring a dramatic shift in your fortunes.

Follow simple rules and fix financial goals in life to be financially free faster with a financial perspective plan.

(3) The third simple hack is Loan v/s SIP: Use the SIP route to repay your home loan or car loan. Invest 10% of your EMI in an Equity MF with the same tenure as in the loan. This saves the investor from the onslaught of interest payments.

Mr. Mohanty’s words of advice to young investors

“Follow simple rules and fix financial goals in life to be financially free faster with a financial perspective plan. Find a financial path and pursue appropriate financial education from verified readily available online sources like Google.”

For women investors watching, golden words of market wisdom indeed from an industry leader!