Investing in Systematic Investment Plans (SIPs) has become one of the most popular wealth-building strategies in India. And recently, a powerful strategy called the 7-5-3-1 formula of SIP has caught the attention of both new and seasoned investors. This simple yet effective rule is making headlines for helping people build crores in long-term wealth.
If you’re wondering how this formula works, how much you need to invest, or how it helps create millionaire portfolios, you’re in the right place. In this article, we’ll break it down in the easiest possible way—with real-life examples, practical steps, and all the numbers you need to know.
7-5-3-1 Formula of SIP
| Feature | Details |
|---|---|
| Investment Formula | 7-5-3-1 Rule for SIP |
| Ideal Tenure | Minimum 7 years for equity SIPs |
| Diversification Strategy | 5 different investing themes (Quality, Value, GARP, Mid/Small-Cap, Global) |
| Investment Phases to Expect | 3 phases: Disappointment, Irritation, Panic |
| Contribution Growth | Increase SIP by 10% annually |
| Potential Returns | Can generate over Rs 1 crore with consistent SIP + increase |
The 7-5-3-1 SIP formula is more than just a catchy acronym—it’s a proven path to financial freedom. By investing consistently, diversifying wisely, staying emotionally disciplined, and increasing your SIP amount every year, you set yourself up for long-term success. Whether you’re a student, a salaried employee, or a business owner, this approach helps you build wealth without stress. Remember, in investing, consistency beats perfection.
What is the 7-5-3-1 Formula of SIP?
The 7-5-3-1 SIP rule is a behavioral and strategic investment approach for long-term success in mutual funds. It’s not just about how much you invest, but how you invest, for how long, and with what mindset.
Here’s what each number means:
7 – Invest for at least 7 years
Equity mutual funds may fluctuate in the short term, but historically, 7+ years of investment significantly reduces risk and increases the chance of earning strong returns.
Example: If you start a SIP of Rs 10,000/month for 7 years with a 12% average return, you could earn Rs 13.2 lakh on your investment of Rs 8.4 lakh.
5 – Diversify across 5 investment styles
Diversification is key to managing risk. The 7-5-3-1 formula recommends splitting your mutual fund investments across these five strategies:
- Quality Stocks: Established companies with strong balance sheets.
- Value Stocks: Undervalued companies likely to rebound.
- GARP (Growth at Reasonable Price): Growth companies that aren’t overvalued.
- Mid/Small-Caps: High-growth companies in smaller segments.
- Global Equities: Exposure to international markets for better balance.
This reduces your risk if one sector or theme underperforms.
3 – Prepare for 3 emotional phases
Investors go through emotional cycles:
- Disappointment: When returns are between 7-10%, lower than expected.
- Irritation: When returns are flat (0-7%), testing patience.
- Panic: When the portfolio is in red; many people stop investing here.
Staying invested through these phases is what separates successful investors from the rest.
1 – Increase SIP by 10% every year
To beat inflation and grow your wealth faster, increase your SIP amount by at least 10% annually.
Example: If you start with Rs 10,000/month and increase it by 10% annually for 20 years at 12% return, your final corpus will be Rs 1.23 crore, compared to Rs 75.4 lakh with no increase
see also: SBI We Care Scheme Is Giving Higher Interest and Stable Returns to Senior Citizens
Why is the 7-5-3-1 SIP Formula So Powerful?
This formula works because it tackles the two biggest challenges in personal finance:
- Investor Behavior: Helps you stay calm during market fluctuations.
- Wealth Building Discipline: Encourages regular investing and incremental increases.
Historical Data Supports Long-Term SIPs
According to Value Research Online and AMFI India:
- SIPs in equity mutual funds have delivered 12-15% annual returns over 10+ years.
- Over 15 years, SIPs in top-performing funds have turned Rs 5,000/month into Rs 35-40 lakh.
Step-by-Step Guide to Using the 7-5-3-1 Formula
Step 1 – Start your SIP early
The sooner you start, the more compounding works in your favor. Even a delay of 3-5 years can cost you lakhs in potential gains.
Step 2 – Choose the right 5 fund categories
Pick mutual funds that fit into the 5 investment styles mentioned earlier. You can use platforms like:
- Groww
- ET Money
- Kuvera
Step 3 – Set up a 10% annual increase in SIP
Most apps and platforms allow you to automate annual SIP step-ups. This keeps your investment aligned with income growth.
Step 4 – Stick to the plan during emotional phases
Remember, dips are normal. The market always recovers. Stay invested.
Step 5 – Review your portfolio every year
Do a performance check and rebalance if necessary. Stick to the 5-style rule.
Real-Life Scenario – How Rs 10K/month Can Make You a Crorepati
Let’s say you invest Rs 10,000 monthly in equity mutual funds and increase the SIP by 10% annually:
- Duration: 20 years
- Expected Return: 12% CAGR
Your total investment = Rs 48 lakh
Your final corpus = Rs 1.23 crore
Without the 10% increase, the corpus would only be Rs 75.4 lakh. That’s a difference of Rs 47.6 lakh!
see also: Understanding Fixed Deposits: A Comprehensive Guide for 2025
FAQs on the 7-5-3-1 SIP Formula
Q. Is this rule backed by SEBI or AMFI?
While SEBI and AMFI don’t endorse specific formulas, they encourage long-term, disciplined SIP investing—which this rule follows.
Q. Can I use this strategy with index funds?
Yes! Index funds (like Nifty 50 or Sensex funds) are great for the “quality” and “GARP” parts of your diversification.
Q. What if I can’t increase my SIP by 10%?
Even a 5% increase helps. The idea is to match your SIP to income growth over time.
Q. Is this formula only for young investors?
Not at all. Anyone with a 7+ year horizon can use this. It’s especially powerful if you start in your 20s or 30s.
