Money-Wise: Are you considering becoming a SIP expert? Here are some golden rules for earning profits

A Systematic Investment Plan or SIP has become one of the key investments in planning their financial future and is believed to accelerate the journey towards financial goals.

However, as simple as investing in SIP may seem, in reality it involves certain rules that can really improve the situation for investors.

In this week’s Money-Wise, we try to understand the golden rules for investing in SIP to create long-term wealth.

This triple 5 rule is best for planning retirement savings. The rule states that the investor must retire five years before the stipulated retirement, increase the SIP by 5 percent every year and aim to create a fund of Rs 52.8 million (approximately $620,661) before the age of 55 years old.

As per this rule, the principal amount should be invested in SIP for 15 years and then extended for the next 5 years and then extended again for 3 years to earn a good profit.

This rule should be implemented when you plan financially for your child. The rules state that the investment must be made before your child turns 18. The monthly SIP deduction should ideally be Rs 15,000 (around $176.32) and the investor should aim for a return of 12%.

This rule recommends investing a monthly SIP of Rs 10,000 for 20 years and aiming for a return of 15 per cent.

As per this rule, investors have to invest in SIPs over 15 years an amount of Rs 15,000 per month and aim for an annualized return of 15 per cent.

The 8-4-3 rule shows how a SIP grows over the years through the power of compounding.

The rule states that investments grow steadily over the first eight years and are likely to generate an average annual return of 12 percent.

From the ninth to the twelfth year, the investment doubles and experiences the same growth as in the last eight years due to the power of compounding.

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After the last three years, SIP investment is growing exponentially and doubling again.

This rule states that stock investments generally achieve good results within seven years, and their ability to generate profits can be further strengthened by dividing funds into five categories, which also alleviates risk concentration.

Fund diversification is important to provide stability to investment and ensure growth of investment portfolios.

The investor can diversify his funds into these categories: high quality stocks (large cap stocks), value stocks, GARP stocks (growth at a reasonable price), mid or small cap stocks and global stocks.

The number “3” represents patience with low returns, minimal returns, and sometimes even negative returns when the market becomes volatile.

And ‘1’ refers to increasing the SIP amount to combat rising inflation. A slight increase in monthly SIP deductions can result in a big difference in profits.