STEP#1 : HAVE A 7+ YEAR INVESTMENT TIME FRAME
It is believed that equity markets usually do well over 7+ year timeframes and this has been proven with the usage from historical data. When you invest with 1 year timeframe, in the past 22+ years, the Nifty 50 TRI has delivered over 10% annualized returns just 58% of the times. Chances improve to 80% for more than over 10% realized returns within a 7 year time frame. Best part is that there are no instances of negative returns for investment period of 7 year time frame. In worst case, annual returns were >5% when invested for 7 years.
The above illustration for lump sum investment also applies to Equity SIP. In fact, incase of SIP, because of Rupee Cost averaging, returns are far in excess, i.e., minimum 7% CAGR. Therefore, best Equity SIP investments should be for at least 7 years, i.e., 84 instalments in case of monthly SIP.
STEP#2 : DIVERSIFY YOUR EQUITY PORTFOLIO USING 5 FINGER STRATEGY
Different investment styles, market cap segments and geographies do well during different market phases. Hence, it becomes important to diversify across them. Unique equity portfolio construction strategy ‘5 Finger Framework’ has been built keeping this in mind. Five Finger Framework aims to deliver consistent outperformance with lower downsides over longer timeframes. The portfolio should be diversified across different investment styles like
- Quality,
- Value,
- Focus
- Growth at Reasonable Price,
- Large Cap
- Mid Cap
- Small Cap
In the last 10 years, the 5 Finger Portfolio has outperformed the Nifty 50 TRI by 4% on an annualized basis.
STEP#3 : PREPARE MENTALLY FOR THE 3 COMMON POINTS OF FAILURE
Equity markets have historically provided superior returns over longer time frames. The initial years of investing journey can be very difficult as intermittent market falls lead to a sharp dip in equity returns. 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.
1. The Disappointment Phase : The phase where the returns are subpar (7-10%).
2. The Irritation Phase : The phase where the returns are much lower than our expectations (0-7%).
3. The Panic Phase :The phase where the returns are negative (below 0%).
These phases happen as a result of equity market volatility. In the last 42+ years of Indian market history it has been shown that temporary market falls of 10-20% happen almost every year and 30-60% falls can be expected once every 7-10 years. Though such phases cannot be avoided but always remember that these falls are temporary in nature. 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. The historical data of NIFTY 50 TRI for SIP returns shows that for 7 year investment horizon, there is no panic zone for returns below zero.
STEP#4 : INCREASE YOUR SIP AMOUNT AFTER EVERY 1 YEAR!
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. An increase in SIP amount every year helps you to reach your financial goals faster. Expand your financial goals over a 20 year period. Your portfolio value, when you increase your SIP amount every year by 10%, is almost twice the original portfolio with a constant SIP amount every year! Thus, following 7-5-3-1 rule, you are sure to make significant wealth with your equity investment through SIP.
REFERENCES :
https://www.thehindu.com/brandhub/fundsindias-7-5-3-1-rule-for-successful-equity-sip-investing/article65550234.ece
https://www.abplive.com/business/the-7-5-3-1-rule-for-successful-equity-sip-investing-know-details-here-2147658
https://youtu.be/Uq8U9dqx2EE
DISCLAIMER : The above information is available on public domain and has been taken mostly from above websites and YouTube videos freely available on internet. The opinion expressed above is in no way recommendation of buying or selling. You must consult your financial advisor before making any fresh investment in equity market.
We (Investor First) are an investment firm and Mutual Fund Distributor (MFD). For any kind of mutual fund investments, you can contact us at the following address :
Website: https://investorfirst.co.in/
Head Office : Investor First, 2nd Floor, 159/129/96, Sri Krishna Tower, Near Hotel Ramada, Ballupur Road, Dehradun-248001, Uttarakhand.
No comments:
Post a Comment