Becoming a crorepati is a dream for many investors, but reaching the Rs 1 crore mark does not necessarily require starting with a very large investment. With disciplined investing, regular contributions and the power of compounding, even a modest monthly SIP can potentially grow into a sizeable corpus over the long term.
One strategy that can help investors accelerate this journey is a Step-Up SIP. Unlike a regular SIP, where the monthly investment remains unchanged throughout the investment period, a Step-Up SIP allows investors to increase their contribution by a fixed percentage every year.
As income rises over time, increasing the SIP contribution can allow investors to put more money to work while continuing to benefit from compounding.
Such a strategy may be useful for young professionals expecting regular salary increments, individuals building a retirement corpus, parents saving for their children’s higher education and investors working towards other long-term financial goals.
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How Does A Step-Up SIP Help Reach Rs 1 Crore Faster?
For example, an investor starting with a Rs 7,500 monthly SIP and opting for a 10% annual step-up would invest Rs 8,250 per month in the second year and Rs 9,075 per month in the third year. The contribution would continue rising by 10% each year.
Assuming an average annual return of 12%, a Rs 7,500 monthly SIP with a 10% annual step-up could grow to around Rs 1.01 crore in 18 years.
During this period, the investor would contribute approximately Rs 41.03 lakh, while the estimated gains would stand at around Rs 60.93 lakh.
Here’s The Calculation
Consider an investor who continues with a fixed Rs 7,500 monthly SIP without increasing the contribution. Assuming a 12% annual return, it could take around 22 years and 4 months to reach the Rs 1 crore mark.
Monthly SIP: Rs 7,500 per month
Time period: 22 years 4 months
Interest rate: 12% per annum.
Total investment value: Rs 20.10 lakh
Estimated returns: Rs 80.34 lakh
Final Corpus: Rs 1 crore
Now, consider the same investor opting for a 10% annual Step-Up SIP. While the initial investment remains Rs 7,500 a month, the contribution increases every year, allowing more money to benefit from compounding over time.
Monthly SIP: Rs 7,500
Annual step-up: 10%
Investment period: 18 years
Assumed return: 12% per annum
Total investment: Around Rs 41.03 lakh
Estimated gains: Around Rs 60.93 lakh
Final corpus: Around Rs 1.01 crore
The calculation shows that the step-up strategy could help the investor reach the Rs 1 crore target more than four years earlier than a fixed Rs 7,500 monthly SIP under these assumptions. But it is important that investors choose a step-up percentage that remains manageable when household expenses and financial commitments rise.
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