In today's era of stock market and mutual fund investment, every sensible investor wants to create a big fund in a short time. Systematic Investment Plan i.e. SIP is considered to be the safest and popular means of investment among common investors, but often due to lack of right strategy and information, people are not able to get the desired returns. If you also want to create great wealth without worrying about the ups and downs of the stock market, then the '7-5-3-1' rule of SIP can prove to be a game-changer for you. Through this very popular and accurate formula, you can easily understand the mathematics of your investment and move forward on the path of becoming a millionaire. Let us understand this entire formula and its calculations in detail in very easy language. What is the magical '7-5-3-1' rule of SIP? This brilliant investment strategy is divided into four key parts, which help in keeping your portfolio safe— 7 i.e. investment for at least 7 years: Never keep equity mutual fund SIPs for short-term. By maintaining investment for a long time i.e. at least 7 years, the impact of market fluctuations becomes minimal and you start getting the real benefit of compounding (compound interest). 5 i.e. diversification of portfolio: Instead of investing all your money in one place or one fund, keep your portfolio divided into at least 5 different assets or funds so that the risk can be reduced. 3 means three emotional conditions of the market: The stock market is not always bullish. Sometimes you will get less returns than expected, sometimes your investment will feel stagnant and sometimes you will see huge losses when the market falls. At such a time, stopping your SIP out of fear is completely against this rule. 1 That is, increase the SIP amount every year: As your income increases, also increase your SIP amount every year. This is called 'Step-up SIP'. Even a modest increase of 5 to 10 percent every year can grow your fund manifold in the long run. Now understand the complete mathematics of monthly SIP of Rs 5,000. Let us understand it through an example. Suppose you start a SIP of only ₹ 5,000 every month and expect to get an average annual return of 12% on it – 3 years investment: At ₹ 5,000 every month, your total investment in 36 months will be ₹ 1.80 lakh, the estimated value of which will give a profit of around ₹ 2.18 lakh i.e. around ₹ 37,500. 7 Years Investment: If you continue the same SIP for 7 years, your total investment will be ₹4.20 Lakh and the projected fund will increase to around ₹6.60 Lakh (i.e. profit of ₹2.40 Lakh). 10-year investment: If the same SIP of ₹5,000 continues for 10 years, your total investment would be ₹6 lakh, but with the power of compounding, it would directly increase to ₹11.62 lakh, giving you a net profit of around ₹5.62 lakh. How to build a big fund through step-up SIP? Real wealth creation happens when you increase your SIP amount every year. Suppose you start with ₹5,000 per month and increase it by 10% every year, then assuming an expected return of 12%, the figures change like this – 7 years tenure: Total investment ₹5.69 lakh ➔ Estimated fund ₹8.46 lakh 10 years tenure: Total investment ₹9.56 lakh ➔ Estimated fund ₹16.70 lakh 15 years tenure: Total investment ₹19.06 lakh ➔ Estimated fund ₹42.99 Lakh 20 Year Period: Total Investment ₹34.36 Lakh ➔ Estimated Fund More than ₹98.46 Lakh This complete calculation is a clear proof that just starting a SIP is not enough, but increasing the investment amount with discipline over time can take you to bigger financial goals. The biggest success of this rule is to stick to your long-term goals instead of panicking during market downturns.
