How to invest in SIPs the right way? Follow this 7-5-3-1 rule

Systematic Investment Plan (SIP) is an automated investment plan that helps you invest a fixed amount into your chosen mutual funds at regular intervals. But to make sure you get the SIPs right, follow this simple rule. (Source: FundsIndia)

1 year is too short a time frame and not suitable for equity SIP investing. While a five-year time frame works reasonably well most of the time, there is still a 10% chance of mediocre returns. Choosing a time frame of at least 7 years helps to increase the odds of reasonable returns & reduce the odds of negative returns!

Diversify your equity portfolio using a five-finder strategy. This distinct portfolio construction strategy places equal emphasis on five key schemes: value, quality, global exposure, mid/small cap, and growth at a reasonable price (GARP).

Most equity SIP investors often give up their SIPs in three tough phases - Disappointment, irritation and panic phase.
All SIP investors need to withstand three punches:
• Disappointment Phase (7-10% returns)
I expected ‘far more’…

• Irritation Phase (0-7% returns)
My FD would have done better…

• Panic Phase (negative returns)
My portfolio value is even lower than what I invested…

This happens in almost every SIP investor’s journey – more frequently during the initial 7 years.

Even a small increase in your Equity SIP amount every year can make a huge difference to your final portfolio value over the long run. Over 20 years, your portfolio value… DOUBLES when you increase your SIP every year by 10%!