SIP Investment 70:20:10 Rule: Systematic Investment Plan (SIP) is an effective way for mutual fund investment. Since the net asset value (NAV) of a mutual fund changes with the performance of stocks in its portfolio, SIP balances out losses in the long run.
With the share market performing well for some years, there is a huge rush in mutual fund investment.
As a result, their performance has gone up in the last few years.
Just in the last one year, large caps have given 25.60 per cent annualised return, while mid caps and small caps have given 39.97 per cent and 43.75 per cent returns, respectively.
A large amount in these mutual funds has come through the SIP route.
On the other hand, however safe the SIP way may look, it is also market-linked and one can't rule out a loss in their investment.
But there is a time-tested formula for mutual fund investment through SIPs that can keep your investments nearly safe and can also save you from losses.
SIP Investment: How should one invest?
Financial planners say SIP investors should follow the rule of 70:20:10.
The rule of 70:20:10 means that one should allocate 70 per cent of their investment to large-cap, 20 per cent to mid-cap and 10 per cent to small-cap mutual funds.
Since large caps belong to financially strong and stable companies, they are less prone to market fluctuation in comparison to mid caps.
Small caps are the most vulnerable to market fluctuations are the first to rise and the first to fall when the market changes.
So, as per the 70:20:10 rule, if one allocates more chunks to large caps, less to mid caps, and the least to small caps, they are less likely to lose money if the market falls.
Even if one's investment turns negative in the event of a market bloodbath, they can buy more NAVs during slump through SIP, which will erode the losses as soon as the market regains strength.
This is how the 70:20:10 rule keeps your mutual fund portfolio largely safe and away from market fluctuations.
SIP Investment: How and when you can benefit?
Financial planners feel that times have always been good for SIP.
Anyone can take entry into SIPs at any time.
The current bullishness of the market is showing that there are more chances of consolidation in the coming months.
There is an opportunity for SIP investors when the market falls, whereas when the market rises, the pace of returns increases.
SIP Investment: What should be the investment duration?
According to financial planners, investors should plan for a period of 8-10 years in equity mutual funds.
In the last 3 years, the number of people investing through SIP has increased continuously.
Many new investors are also investing through SIPs to achieve their financial goals.
The SIP contribution figure crossed Rs 1 trillion in FY24.
According to the data of the Association of Mutual Funds in India (AMFI), the total number of SIP accounts has reached 7.44 crore in the financial year 2023-24.
