{"id":2160,"date":"2023-02-18T13:46:09","date_gmt":"2023-02-18T08:16:09","guid":{"rendered":"https:\/\/myfinadvisor.com\/home\/?p=2160"},"modified":"2023-02-18T13:46:43","modified_gmt":"2023-02-18T08:16:43","slug":"7-5-3-1-rule-for-equity-sip","status":"publish","type":"post","link":"https:\/\/myfinadvisor.com\/home\/7-5-3-1-rule-for-equity-sip\/","title":{"rendered":"7-5-3-1 Rule for Equity SIP"},"content":{"rendered":"\n<p><strong>HAVE A 7+ YEAR INVESTMENT TIME FRAME:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>It believed that equity markets usually do well over 7+ year timeframes and this has been proven with the usage from historical data.<\/li>\n\n\n\n<li>When you invest with a 1 year timeframe, in the past 22+ years, the Nifty 50 TRI has delivered over 10% annualized returns just 58% of the times.<\/li>\n\n\n\n<li>Chances improve to 80%<strong>&nbsp;<\/strong>for more than over 10% realized returns within a 7 year time frame.<\/li>\n\n\n\n<li>Best part is that there are no instances of negative returns for investment period of 7 year time frame.<\/li>\n\n\n\n<li>In worst case, annual returns were &gt;5% when invested for 7 years.<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/qph.cf2.quoracdn.net\/main-qimg-79e1dafb227ee141c3dcccd48e7f0b99-pjlq\" alt=\"\"\/><\/figure>\n\n\n\n<p>Source: MFI, FundsIndia Research. As on 30-Apr-22. Nifty 50 TRI Inception date: 30-Jun-99.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The above illustration for lump sum investment also applies to Equity SIP. In fact in case of SIP because of Rupee Cost averaging returns are far in excess, i.e., minimum 7% CAGR, as shown below<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/qph.cf2.quoracdn.net\/main-qimg-cc28a5f2b19dfc9de3e5c041badd51ae-pjlq\" alt=\"\"\/><\/figure>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Therefore, best Equity SIP investments should be for at least 7 years, i.e., 84 instalments in case of monthly SIP.<\/li>\n<\/ul>\n\n\n\n<p><strong> DIVERSIFY YOUR EQUITY PORTFOLIO USING 5 FINGER STRATEGY<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Different investment styles, market cap segments and geographies do well during different market phases.<\/li>\n\n\n\n<li>Hence it becomes important to diversify across them.<\/li>\n\n\n\n<li>Unique equity portfolio construction strategy&nbsp;<strong>\u20185 Finger Framework\u2019&nbsp;<\/strong>has been built keeping this in mind.<\/li>\n\n\n\n<li>5 Finger Framework aims to deliver consistent outperformance with lower downsides over longer timeframes.<\/li>\n\n\n\n<li>The portfolio should be diversified across different investment styles like\n<ul class=\"wp-block-list\">\n<li><strong>Quality,<\/strong><\/li>\n\n\n\n<li><strong>Value,<\/strong><\/li>\n\n\n\n<li><strong>Focus<\/strong><\/li>\n\n\n\n<li><strong>Growth at Reasonable Price,<\/strong><\/li>\n\n\n\n<li><strong>Large Cap<\/strong><\/li>\n\n\n\n<li><strong>Mid Cap<\/strong><\/li>\n\n\n\n<li><strong>Small Cap<\/strong>.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>In the last 10 years, the 5 Finger Portfolio has outperformed the Nifty 50 TRI by 4% on an annualized basis.<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/qph.cf2.quoracdn.net\/main-qimg-611933854b361f092987da3d6e84609e-pjlq\" alt=\"\"\/><\/figure>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The 5 Finger Framework historically has provided:\n<ul class=\"wp-block-list\">\n<li><strong>Consistent Performance:<\/strong>\n<ul class=\"wp-block-list\">\n<li>In all 5 year periods, the 5 Finger Strategy has outperformed the Nifty 50 TRI 100% of the times<\/li>\n\n\n\n<li>85% of the times, the 5 year outperformance has been more than 3%!<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Lower Downsides<\/strong><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/qph.cf2.quoracdn.net\/main-qimg-50fe2ef4dee40da87859885b0c42a70a\" alt=\"\"\/><\/figure>\n\n\n\n<p><strong>PREPARE MENTALLY FOR THE 3 COMMON POINTS OF FAILURE<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Equity markets have historically provided superior returns over longer time frames.<\/li>\n\n\n\n<li>The real challenge is to survive the three temporary but inevitable phases of failure that happen during the initial years, most likely in the first 5 years of equity investing.\n<ul class=\"wp-block-list\">\n<li><strong>The Disappointment Phase<\/strong>\n<ul class=\"wp-block-list\">\n<li>The phase where the returns are subpar (7-10%)<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>The Irritation Phase<\/strong>\n<ul class=\"wp-block-list\">\n<li>The phase where the returns are much lower than our expectations (0-7%)<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>The Panic Phase<\/strong>\n<ul class=\"wp-block-list\">\n<li>The phase where the returns are negative (below 0%)<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>These phases happen as a result of equity market volatility.<\/li>\n\n\n\n<li>In the last 42+ years of Indian market history it has been shown that\n<ul class=\"wp-block-list\">\n<li><strong>Temporary market falls of 10-20% happen almost every year and<\/strong><\/li>\n\n\n\n<li><strong>30-60% falls can be expected once every 7-10 years.<\/strong><\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>The initial years of investing journey can be very difficult as intermittent market falls lead to a sharp dip in equity returns &#8211; resulting in phases of\n<ul class=\"wp-block-list\">\n<li>disappointment,<\/li>\n\n\n\n<li>irritation and<\/li>\n\n\n\n<li>panic.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>Though such phases cannot be avoided but always remember that these falls are temporary in nature.<\/li>\n\n\n\n<li>Historically, the equity markets have always recovered and the returns improved significantly in the next 1-3 years after the great falls, rise of 2020 and 2009 are recent example.<\/li>\n\n\n\n<li>See, historical data of NIFTY 50 TRI for SIP returns.<\/li>\n\n\n\n<li>For 7 year investment horizon, there is no panic zone for returns below zero.<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/qph.cf2.quoracdn.net\/main-qimg-5d75a9d7e03076aee282197ab4a7d7d3-pjlq\" alt=\"\"\/><\/figure>\n\n\n\n<p><strong>INCREASE YOUR SIP AMOUNT AFTER EVERY 1 YEAR!<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>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.<\/li>\n\n\n\n<li>An increase in SIP amount every year helps you to\n<ul class=\"wp-block-list\">\n<li>Reach your financial goals faster<\/li>\n\n\n\n<li>Expand your financial goals<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>Over a 20 year period, your portfolio value when you increase your SIP every year by 10% is almost twice the original portfolio with a constant SIP amount every year!<\/li>\n\n\n\n<li>Here is a table which shows the difference in final portfolio values across different time frames for different % of annual increase in SIP amount<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-image is-resized\"><img fetchpriority=\"high\" decoding=\"async\" src=\"https:\/\/qph.cf2.quoracdn.net\/main-qimg-5cb19060805869ffdef80cb38c40d351-pjlq\" alt=\"\" width=\"602\" height=\"150\"\/><\/figure>\n\n\n\n<p><strong>Thus following 7-5-3-1 rule, you are sure to make significant wealth with your equity investment through SIP.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>HAVE A 7+ YEAR INVESTMENT TIME FRAME: Source: MFI, FundsIndia Research. As on 30-Apr-22. Nifty 50 TRI Inception date: 30-Jun-99. DIVERSIFY YOUR EQUITY PORTFOLIO USING 5 FINGER STRATEGY PREPARE MENTALLY FOR THE 3 COMMON POINTS OF FAILURE INCREASE YOUR SIP AMOUNT AFTER EVERY 1 YEAR! Thus following 7-5-3-1 rule, you are sure to make significant&#8230;<\/p>\n<p class=\"more-link\"><a href=\"https:\/\/myfinadvisor.com\/home\/7-5-3-1-rule-for-equity-sip\/\"><span>Read More<\/span><i>&#43;<\/i><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8],"tags":[],"class_list":["post-2160","post","type-post","status-publish","format-standard","hentry","category-consulting"],"_links":{"self":[{"href":"https:\/\/myfinadvisor.com\/home\/wp-json\/wp\/v2\/posts\/2160","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/myfinadvisor.com\/home\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/myfinadvisor.com\/home\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/myfinadvisor.com\/home\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/myfinadvisor.com\/home\/wp-json\/wp\/v2\/comments?post=2160"}],"version-history":[{"count":1,"href":"https:\/\/myfinadvisor.com\/home\/wp-json\/wp\/v2\/posts\/2160\/revisions"}],"predecessor-version":[{"id":2161,"href":"https:\/\/myfinadvisor.com\/home\/wp-json\/wp\/v2\/posts\/2160\/revisions\/2161"}],"wp:attachment":[{"href":"https:\/\/myfinadvisor.com\/home\/wp-json\/wp\/v2\/media?parent=2160"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/myfinadvisor.com\/home\/wp-json\/wp\/v2\/categories?post=2160"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/myfinadvisor.com\/home\/wp-json\/wp\/v2\/tags?post=2160"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}