Using 7-5-3-1 rule in mutual fund investment for enhanced wealth creation and improved resilience

When it comes to investment, all our efforts together with the capital is channelised in a way to help us meet our long-term finacial goals. And now as SIP or systematic investment plans are the most opted route for investment given the cost effectiveness it brings, you can run the course through a strategy or rule called 7 5 3 1 rule.

Importanly, as per a Geojit report, gross SIP inflows hit Rs 23,547 crore in August 2024, a new high, up 7.8 per cent from three month average. Average SIP size is estimated at 2450 per SIP, up 7.9 per cent YoY.

So, as SIP mode helps to meet larger financial goals easily and conveniently, investors can also make their SIP investments keeping into view this  7 5 3 1 Rule. The rule in the words of Hitesh Thakkar, Acting CEO, ITI Mutual Fund is a strategy that is well-suited for achieving financial goals through SIP investments in mutual fund.

Here are the other nuances that an investor should know regarding the rule:

7 Years, 5 categories, 3 phases and 1 frequency of top up.
7 Years: Equity investments tend to perform better over extended periods, and a minimum investment horizon of 7 years allows for the potential benefits of compounding. A time frame of 7+ years allows to navigate various market cycles & volatility, thereby substantially enhancing the potential for generating positive returns.

5 categories of fund: Diversifying to multiple scheme categories can help to mitigate concentration risk that arises from sticking to only a single scheme/category. Adopting the 5-finger strategy i.e. spreading investments across categories would have worked potentially better than concentrating investments in just one asset class. 

3 Phases: SIP instils patience and diligence in investors. It gives investors the necessary patience to wither market volatility. 

1 Frequency of Top-Up: Increasing the amount of the SIP helps fight against rising inflation. The increase in the small amount would also bring a huge difference to the in the long run and a significant increase in corpus so that financial goal can be achieved within reasonable time period. 

Hence, while this method is grounded in mathematical principles, it provides investors with a logical framework to navigate the complexities of market fluctuations. 

Disclaimer - The views expressed are purely personal in nature. The statements herein may include future expectations and other forward-looking statements that are based on our current views and scenarios. The information herein alone is not sufficient and shouldn’t be used for development of an investment strategy or construed as investment advice. Please consult your financial advisor before investing.

Mutual Fund investments are subject to Market Risk. Please read all scheme related documents carefully.