Though systematic investment plans (SIPs) are a popular medium through which we invest our savings, they have traditionally been marred by one disadvantage. You cannot increase the amount of an existing SIP. Fortunately, a few fund houses now allow you to top up your SIP.
How does it work?
In simple words, a top-up facility in your SIP allows you to increase your monthly contribution in an ongoing SIP. For instance, if you invest, say, Rs 5,000 every month in an SIP and wish to commit an additionalRs 1,000 every month, some fund houses, including ICICI Prudential Asset Management Co. Ltd, allow you to do that in the same SIP. Earlier this month, Birla Sun Life Asset Management also introduced a facility called “step-up SIP”. Others such as DSP BlackRock Investment Management Pvt. Ltd are contemplating to offer this facility.
Why should you top up?
The main benefit of a top-up is that it accommodates an increase in income, like an annual salary hike. Since SIPs are mostly targeted towards retail investors, many of whom are salaried, they have for long faced the dilemma of running too many SIPs simultaneously. Every time you get a salary hike and subsequently wished to invest more through your SIPs, you were forced to start a new SIP.
A file photo of rupee notes
Check with your broker if your fund house offers a top-up.
Also, check in what form your fund house offers a top-up facility. For instance, ICICI Prudential AMC mandates that you mention the top-up amount and the date from which you want it to be effective, all at the time of starting your SIP. It has to be done upfront. On the other hand, if you have an SIP with Birla Sun Life AMC, you can decide about a top-up at a later date and inform your fund house accordingly. All you need to do now is write a letter to your fund house (or its registrar and transfer agent; R&T) stating your folio number and a request to top up. You will, however, have to submit a fresh electronic clearing system (ECS) mandate.
What about online platforms?
Online platforms such as www.fundsindia.com and www.fundsupermart.co.in do not yet allow this facility. The reason being SIPs are their own offering. In technical parlance, these SIPs are said to have been offered as a facility that comes from them and not from the fund house. So for instance, FundsIndia offers a facility called Flexi SIP that gives you the option, every month, to choose the following month’s SIP amount. The maximum limit is 10 times the regular SIP amount.
You don’t necessarily need to make this choice every month; if you do nothing, then your usual SIP amount that you had decided earlier will get invested.