Step-up SIP Formula: The special thing is that this formula is going to work best on salaried professionals. You can achieve your financial goals by adopting this formula.
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Investment Plan: There will be fluctuations in the stock market, history shows that the market falls as fast as it rises. Therefore, if you are investing in equity through mutual funds, then you can raise a large fund in the long term. Only the right strategy is needed for this.
Actually, Systematic Investment Plan (SIP) is quite popular among Indian investors, and it has made a lot of money in the long term. A special formula of ’10-7-1′ works for this. This rule focuses on understanding the volatility of the market, staying invested for a long time and increasing the SIP amount. The special thing is that this formula is going to work best on salaried professionals. You can achieve financial goals by adopting this formula.
Now let’s know what is the ’10-7-1′ rule?
The first part of this rule is ’10’, which indicates the expectation of a 10% decline in the Indian stock market on an average every 7 years. This has happened in 20 out of the last 23 years. In such a decline, experienced investors do not panic and continue with the SIP, as more units can be purchased at a lower NAV (net asset value) at the lower market level.
Its second part is ‘7’, indicating an investment horizon of at least 7 years. Data shows that staying invested in large cap, flexi cap and Nifty 50 index funds for 7 or more years increases the probability of positive returns. Not only this, following this time frame reduces the risk of investment and increases the probability of returns. For example, you can take that period 2000-2007, 2007-2014 or 2015-2022. This formula has always given beneficial results on long-term investments. Actually, this formula shows the effect of a specific tenure and compounding.
The third part of this formula is ‘1’, that is, every year. This means that every year you should increase your SIP amount by at least 10%. So that in the long term your portfolio can make almost double the money as compared to the normal return. For example, if you do a SIP of Rs 10,000 per month and get a 12% return on it, then after 15 years you will get around Rs 47 lakh. But if you increase the investment amount by 10% every year with a monthly SIP of Rs 10,000, then after 15 years you will get a total of Rs 82 lakh at the rate of 12 percent return. If you get a 15 percent return, then you can raise an amount of more than one crore rupees. This formula is called Step-Up-SIP. Step-Up-SIP means that while continuing the investment, the investment amount also has to be increased at a fixed time.
Power of compounding
It is worth noting that the investor is going to get the benefit of compounding here. Experts say that disciplined and patient investment is the basis of creating a real big fund. The ’10-7-1′ formula is a guiding principle for investors who want to make money in the long term while understanding the risk. Experts advise setting financial goals and assessing your risk appetite before starting to invest. Adopting a step-up SIP allows investments to be increased with rising income, which helps to combat inflation.
Step-up-SIP (Systematic Investment Plan) allows you to increase your monthly SIP contribution annually as your income rises. For example, if you start with a SIP of Rs 10,000 per month, you can increase the amount by 10% in the second year by investing Rs 11,000 monthly.
