The calculation assumes an annual return of 12% and shows how a step-up SIP can significantly increase wealth creation compared with keeping the monthly investment unchanged. Under the illustration, the investor would accumulate a total corpus of about Rs 10.69 crore after 25 years.
However, the figure is based on an assumed rate of return and is not guaranteed. Mutual fund investments are market-linked, and actual returns can be higher or lower depending on market performance.
How the Rs 25,000 SIP strategy works
The strategy begins with a monthly investment of Rs 25,000.
Instead of keeping the SIP amount fixed throughout the investment period, the investor increases the contribution by 10% every year. This approach is known as a step-up SIP and is designed to align investments with potential increases in income over time.
For example, an investor starting with Rs 25,000 a month would increase the monthly contribution to Rs 27,500 in the second year. The amount would continue to rise by 10% every year, allowing the investor to put more money to work as earnings potentially increase.
According to the illustration, the investment continues for 25 years with an assumed annual return of 12%.
Rs 25,000 SIP without step-up
A fixed SIP can also benefit significantly from long-term compounding.
The NDTV Profit calculation estimates that a Rs 25,000 monthly SIP maintained for 25 years, assuming a 12% annual return, could grow to approximately Rs 4.7 crore.
The difference becomes much more significant when the SIP contribution is increased every year.
This demonstrates the impact of continuing to invest more as income rises rather than maintaining the same contribution for decades.
10% annual step-up takes corpus beyond Rs 10 crore
Under the step-up illustration, the key assumptions are:
- Starting monthly SIP: Rs 25,000
- Annual step-up: 10%
- Investment period: 25 years
- Assumed annual return: 12%
- Total amount invested: Rs 2,95,04,117
- Estimated wealth generated: Rs 7,73,84,534
- Estimated final corpus: Rs 10,68,88,652
The estimated corpus therefore works out to around Rs 10.69 crore, crossing the Rs 10 crore target.
The calculation also shows that nearly Rs 3 crore would be contributed over the investment period, while the remaining amount would come from the assumed investment growth.
Why step-up SIPs can make a difference
The biggest advantage of a step-up SIP is that it allows investors to increase their investment gradually rather than starting with an extremely high monthly contribution.
For someone whose income rises over time, increasing the SIP annually can potentially make the investment more manageable.
The strategy also gives additional money more time to compound. Contributions made in the earlier years have a longer period to generate returns, while later increases add to the overall investment base.
This combination of increasing contributions and long-term compounding can produce a substantially larger corpus than a fixed SIP.
Long investment horizon is important
Retirement planning is a long-term financial goal, making the investment horizon particularly important.
A 25-year period gives the investor considerable time to remain invested through different market cycles. Short-term fluctuations may have less impact on a portfolio when the investment horizon is measured in decades, although market risk does not disappear.
Starting earlier can also reduce the amount an investor needs to contribute initially compared with someone attempting to build the same corpus over a much shorter period.
What happens if the step-up is lower?
A lower annual increase can still create a large corpus, but it may require a longer investment period.
A separate NDTV Profit illustration shows that a Rs 25,000 monthly SIP with a 5% annual step-up, a 12% assumed return and a 28-year investment period could generate approximately Rs 10.17 crore.
Under that scenario, the total investment is estimated at Rs 1.75 crore, while estimated returns account for about Rs 8.42 crore.
The comparison highlights how the annual step-up percentage and investment duration can materially affect the final corpus.
SIP returns are not guaranteed
While the calculations demonstrate the potential of systematic investing, investors should not treat the projected corpus as a certainty.
Mutual fund returns are linked to market performance. A 12% annual return is an assumption used for the illustration and does not mean an investor will earn exactly 12% every year.
Actual returns can vary significantly from one year to another, and market downturns can affect the value of the investment.
Investors should therefore consider their financial goals, risk tolerance, investment horizon and existing assets before deciding on an SIP strategy.
Inflation also matters
A Rs 10 crore corpus may sound substantial today, but retirement planning should account for inflation.
Over a 25-year period, the purchasing power of money can decline considerably. Therefore, investors targeting a particular retirement lifestyle should calculate the future value of their expenses rather than relying only on today’s costs.
Medical expenses, housing, travel and other retirement needs can also change over time.
A retirement plan should therefore consider both the expected corpus and the income that the corpus may need to generate after retirement.
Step-up SIP can align with salary growth
One reason the step-up approach is popular among salaried investors is that contributions can potentially rise alongside income.
An investor may begin with Rs 25,000 a month when their salary is lower and gradually increase the SIP as earnings rise.
This can make the strategy less demanding than immediately committing a much larger amount. However, a 10% annual increase may not be practical for everyone, particularly during periods of job uncertainty, rising expenses or financial emergencies.
Maintaining an emergency fund and adequate insurance should therefore remain part of a broader financial plan.
Conclusion
A Rs 25,000 monthly SIP with a 10% annual step-up could potentially grow to around Rs 10.69 crore over 25 years, assuming a 12% annual return. The illustration estimates total contributions of about Rs 2.95 crore and wealth generated of roughly Rs 7.74 crore.
The example highlights the power of increasing investments gradually and allowing them to compound over a long period. However, the projected Rs 10 crore-plus corpus is not guaranteed, as mutual fund returns depend on market performance.
For retirement planning, investors should consider inflation, changing expenses, risk tolerance and their ability to sustain annual SIP increases before adopting a step-up strategy.