A Comprehensive Guide to SIP & SIP Top-Up

A Systematic Investment Plan (SIP) Calculator is an essential tool designed to help investors estimate the returns on their investments made through SIP. By entering specific parameters such as the monthly investment amount, investment duration, and expected rate of return, you can get an approximation of the maturity amount of their SIP investments. This calculator offers a convenient way to assess the potential wealth gain and expected returns over time. SIP-Top Calculation is an extension of the SIP calculator, where after starting the SIP, you add some additional amount as your income increases or circumstances allow for a higher rate of savings.

Understanding SIP Calculators

A Systematic Investment Plan or SIP Calculator is used for estimating potential returns on investments made through SIPs in mutual funds. It allows investors to project the future value of their SIP investments by inputting certain key parameters, such as the monthly, quarterly or yearly investment amount, the expected rate of return, and the investment duration.

Step 1: Initial Details – You start by entering the initial details into the SIP Calculator. These typically include:

  • - The initial investment amount: This is the amount you plan to invest in the mutual fund through SIP.
  • - SIP frequency: You specify how often you plan to make these investments (e.g., weekly, monthly, quarterly or yearly).
  • - Investment duration: You input the period for which you plan to continue your SIP investments (e.g., 10 years or so on).

Step 2: Expected Rate of Return – Next, you provide the expected rate of return. This is the annual percentage gain you anticipate from your mutual fund SIP investments. It's important to note that the rate of return can vary depending on the type of mutual fund you choose and market conditions. It's advisable to use a reasonable rate to get a realistic picture for your investment planning.

Step 3: Calculation Process – Once you've entered all these details, the SIP Calculator performs calculation to estimate the future value of your investments. It uses a formula (see below) to project the potential wealth accumulated through SIP investments over time.

M = P × [{(1 + r) n – 1} / r] × (1 + r)

Where, M = Investment Value (at the end of investment Duration);  P = Monthly (or any other interval) SIP instalments;  r = Expected rate of return (ROI);  n = Number of periods in months (or any other interval);

For example, if someone aims to accumulate 20 lakhs in 10 years by investing 20,000 per month in mutual funds with an expected annual return of at least 12%, the total amount at maturity would be 23.23 lakhs, with 11.23 lakhs being the growth in wealth.

Using DSP SIP Top-Up Calculator

The DSP Mutual Fund SIP Top-up calculator is user-friendly and particularly suitable for beginners and new investors seeking to estimate returns on investment in DSP Mutual Fund schemes. To use this calculator effectively, follow these steps:

  1. Input the required details -
    • Goal Amount.
    • Expected CAGR.
    • Enter either one data, or the other will be calculated.
      • Tenure to achieve goal.
      • Starting SIP Amount
  2. There are two parts to the result -
    • You get the answer to the other one between Tenure to achieve goal or Starting SIP Amount
    • You get to see the table, which shows that with the stated starting SIP amount, if you add the annual top-up in Rupees or percentage terms, then in how much time you will reach the goal. There are multiple options to give a sense of how the time taken to reach the goal will reduce with a higher top-up number.

Benefits of Sip Top-Up

  • Helps reach financial goals faster: SIPs are designed to achieve your goals at a steady pace. The SIP top-up facility allows you to increase the pace of your investments at a brisk speed to meet your expanding needs and achieve goals a lot quicker.
  • Allow you to keep investing in an existing plan rather than open a new one: It saves you from the hassle of managing multiple SIPs. Sometimes, looking for a new investment opportunity is time-consuming and involves a lot of risks. Instead, topping up an existing investment allows one to gather more units of their existing fund in their portfolio.
  • Convenient way to fight inflation: Inflation erodes the value of money over time; you may have to save / invest more over time to keep pace with inflation. As your income and expenses increase periodically, it may be prudent to raise your contributions proportionately to meet your desired goal.

SIP Top-Up Frequency

The top-up frequency in the DSP SIP Top-Up Calculator is annual. But the calculator gives two options in the top-up. (a) The top-up can be in fixed amount or (b) The top-up can be in percentage.

Additionally, the calculator gives the option to either reduce tenure or reduce the SIP starting amount. This allows investors to see how with each change, the results would change.

What Percentage is Ideal for SIP Top-Up?

The SIP top-up percentage typically ranges from 5% to 20%. With a SIP top-up, you can increase the SIP amount annually by a fixed amount or as a percentage of the original SIP amount. Usually, a minimum of Rs 500 annually or a 5% to 10% increase in the initial SIP amount can be used as top-ups.

Distinguishing Between SIP and Top-Up SIP

Both Systematic Investment Plans (SIPs) and top-up SIPs are variations of mutual fund investment strategies. However, they differ in how the investments are structured:

Normal SIP: In a regular SIP, you invest a fixed amount of money at regular intervals, typically monthly or annually. The fixed investment amount remains constant throughout the investment period. A normal SIP allows you to maintain a disciplined approach to investing, regardless of market conditions.

Top-Up SIP: Top-Up SIP: A top-up SIP is similar to a regular SIP but with a significant difference. In a top-up SIP, you start with an initial investment amount, and you have the option to periodically increase the investment amount by a predefined percentage or fixed amount. Over time, your investment amount can grow, enabling you to invest more when your financial situation allows it.

This tool has been designed for information purposes only. Investor should not consider above as a recommendation for any schemes of DSP Mutual Fund / third party mutual fund schemes. Data captured here is publicly available including information developed in-house. The recipient(s) before acting on any information herein should make his/their own investigation and seek appropriate professional advice. Investors are requested to note that there is no assurance of any returns/capital protection/capital guarantee to the investors in any schemes of DSP Mutual Fund. Past performance may or may not sustain in future and should not be used as a basis for comparison with other investments. The Performance may vary from scheme to scheme and depends upon several factors including load structure, investment framework, AUM, Investment objective, sector diversion, asset allocation & internal risk management parameter. Investor before investing into any kind of mutual fund scheme should read and be aware of scheme specific risk factors including Risk-o-meter of scheme / benchmark, Investment strategy & objective, asset allocation, Load structure, Plan/options available etc. defined in offer documents (Scheme Information Document and Key Information Memorandum) which are available on website. While utmost care has been exercised while preparing this tool, the DSP Asset Managers Private Limited/ DSP mutual Fund nor any person connected does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information.

"All the returns shown are as per the category prescribed in latest AMFI Best practice Guidelines (AMFI BPG) and any such guidelines issued by AMFI from time to time. Category wise calculators used above is to provide conceptual clarity to investors or for educational purposes. Numerical illustrations are being used for SIP / SWP / STP calculators only for the categories to explain the power of compounding. “Past performance may or may not be sustained in future and is not a guarantee of any future returns”. These figures pertain to performance of the categories/situations as prescribed by AMFI by using the compounded annualized growth rate % (CAGR) prescribed against each category/situation and do not in any manner indicate the returns/performance of any of the schemes of the DSP Mutual Fund. Investors are advised to consult their own legal, tax and financial advisors to determine possible tax, legal and other financial implication or consequence of subscribing to any of the units of the schemes of the DSP Mutual Fund. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Note: Returns calculated by taking mean of 10-year rolling returns between 01/06/13 and 30/05/23 for various benchmarks. Mean returns are as follows: INR Gold 9.34%; Sensex: 12.64%; Nifty 50: 12.93% and 10-year G-Sec: 7.20%. (This note is as per AMFI BP)"