What does a 10% annual step-up add to a ₹20,000 SIP over 25 years?
Scenario
Compare flat ₹20,000/month SIP vs ₹20,000/month SIP with 10% annual step-up, both at 12% nominal returns, over 25 years
Inputs
- Horizon years
- 25
- Starting sip INR
- 20000
- Step up rate %
- 10
- Assumed return %
- 12
Calculation
- 1.
Flat SIP nominal contributions over 25 yrs
₹20K × 300 months → ₹60.00 L
- 2.
Flat SIP terminal corpus at 12%
₹20K × SIP-FV factor 1888 → ₹3.78 Cr
- 3.
Step-up SIP nominal contributions (₹20K growing 10% yearly for 25 yrs)
₹20K × 12 × (1.10^25 − 1)/0.10 → ₹2.36 Cr
- 4.
Step-up SIP year-25 monthly amount
₹20K × (1.10)^24 → ₹1.97 L
- 5.
Step-up SIP terminal corpus at 12%
summed compounding of each year's contributions → ₹6.94 Cr
- 6.
Additional corpus from step-up
₹6.94 Cr − ₹3.79 Cr → ₹3.16 Cr
Conclusion
₹3.16 crore of additional terminal wealth from a 10% annual step-up — roughly 83% larger corpus than flat SIP. Equivalent to running a flat ₹36,600/month SIP for all 25 years, but starting at only ₹20K/month.
Tradeoffs
The step-up requires income to actually grow ~10% annually to be sustainable. Pre-committing the escalation removes the annual decision (which most people postpone) but requires honest assessment of expected income trajectory. Over-stepping leads to forced reduction; under-stepping leaves real corpus shrinking.