When it comes to mutual fund investments through SIPs, the primary hurdle is not a lack of knowledge but rather adhering to a set plan. The fluctuating nature of the market can evoke anxiety even in seasoned, long-term investors.
To streamline this process, Ritesh Sabharwal, a certified financial planner and personal finance expert, has introduced a simple formula that he believes can enhance investors’ returns over time.
He refers to it as the 10-7-10 rule.
“The key is maintaining discipline and anticipating reasonable returns,” Sabharwal stated on LinkedIn, emphasizing that successful investing hinges more on behavior than trying to predict market trends.
PREPARE FOR A 10% ANNUAL DECLINE
The initial aspect of the rule urges investors to accept market volatility.
“Anticipate a 10% decrease in your investments each year,” Sabharwal pointed out.
He clarified that temporary market downturns are not anomalies but rather regular occurrences. Notably, Indian markets have experienced at least one 10% drop in 20 out of the last 23 years. His message is clear: individuals aiming for long-term wealth must cultivate the resilience for two key factors—time and short-term market fluctuations.
“You should be able to retain your investments during these periods of volatility,” he added.
STICK WITH YOUR INVESTMENTS FOR OVER 7 YEARS
The number 7 underscores the significance of patience.
<p“Continue to invest in your SIPs for a duration exceeding 7 years. Historical market data indicates that investments held for a minimum of 7 years have consistently yielded positive returns,” he mentioned.
<p Sabharwal emphasized that the power of compounding is most effective when investors allow their funds adequate time to mature. Short-term investment strategies hinder growth, whereas long-term commitments provide markets the opportunity to rebound from downturns and deliver superior overall returns.
INCREMENT YOUR SIP BY 10% ANNUALLY
<pThe final 10 focuses on progressively boosting investments each year.
<pHe illustrated this with an example: investing Rs 20,000 monthly for 10 years at a 12% return rate could potentially grow to around Rs 46 lakh. However, by increasing the SIP amount by 10% annually, the same investment could potentially reach about Rs 67 lakh.
<p“Certainly, adjust as per your requirements.