Wish you all a very Happy and a Prosperous New Year 2020 !

Sahil turns 25 in 2020 and the top of the line item in his ‘to do’ list in the new year is to start an SIP (Systematic Investment Plan) of Rs 5000 p.m. in equity  mutual funds. Assuming a return of 12% p.a., the below table shows how his corpus would grow till his superannuation at age 60 years. The power of compounding is clearly visible as his wealth grows from Rs 25 lac at age 40 to Rs 95 lac at age 50 and to Rs.325 lac by age 60. While his corpus had grown by 6 times the principal at age 50, the same had grown to 15 times the principal by staying invested for another 10 years till age 60. Compounding becomes stronger as one stays longer.

However, his friend Pradeep advised Sahil on a better way to speed up his wealth creation drive using a tool called ‘Top-Up’. According to Pradeep, as Sahil’s income rises, he should invest more and see his potential wealth grow faster. The below table shows how a top-up plan would work for Sahil if he increases his SIP amount by just 10% p.a.

In the first 10 years, his corpus touches Rs 17 lac and then to Rs 99 lac in 20 years. At superannuation (60 years), the corpus is close to Rs 9 crore, almost 3 times the corpus than a normal SIP.

In summary, a top-up provides accelerated growth to the wealth creation journey. The table below highlights the difference in values of a normal and a top-up SIP, where you will observe that after 20 years, a top-up of Rs 22 lac in 20 years provides an additional corpus of almost half a crore while a top up of Rs 44 lac in 25 years provides an incremental corpus of Rs 1.19 crore. If one continues this till retirement, the incremental SIP contribution via top-up is Rs 1.4 crore which increases the corpus by Rs 5.6 crore.

While the numbers shown above are for illustration only, actual numbers may differ. The moot point is to show-case the benefits of a top-up SIP in line with our income stream. Since top-ups happen periodically in line with our income cycle, the advantage is that the incremental cash flows are immediately invested instead of getting spent. While most of us have realized the importance of SIPs, top-ups are still outside the radar. So this new year, let us resolve to add a top-up to our existing SIPs and seek to get the power of accelerated wealth creation.