Numerology has a strong following in India, with many believing that certain numbers hold the power to shape fortunes—both good and bad. While there is no magic numerological formula for investment success, one number rule, 8-4-3, might be of some help. So, what is the 8-4-3 rule of compounding and its role in wealth creation? Let’s find out.
Systematic Investment Plans (SIPs) allow you to put money into mutual fund schemes at regular intervals so you can build wealth over time. The 8-4-3 rule is a conceptual framework designed for SIPs. It illustrates the power of compounding over a 15-year investment period.
The 8-4-3 rule of SIP divides your investment journey into three distinct phases. The first eight years focus on steady growth, where your investments grow gradually. The next four years may see enhanced growth as your returns are compounded faster and your fund value starts to build momentum. Your investments may earn even higher returns in the final three years, leading to exponential wealth accumulation.
It is important to note that the 8-4-3 rule is merely a conceptual approach to help investors visualise how consistent investing and patience can lead to wealth creation over time. However, it is not a foolproof or established financial principle.
The 8-4-3 rule essentially shows how the power of compounding in mutual funds can help your money grow faster over time. Let’s take an example to see how it works in action.
Suppose you invest Rs 30,000 every month through an SIP, and your mutual fund scheme gives an annual return of 12% that is compounded yearly. Here’s what your investment journey will look like:
*Note: This return rate has been assumed for illustration purposes only. The actual return rate depends on market performance.
The final outcome: With disciplined long-term investing and some patience, you may be able to turn your monthly investment of Rs 30,000 into a substantial figure of Rs 1.5 crore in just 15 years. The momentum at which your investments grow fastens considerably as the years go by. So, the longer your money stays invested, the faster it grows, helping you create wealth.
Key considerations: While the 8-4-3 rule helps invest in a structured manner to maximise growth, investment returns are subject to market fluctuations and never guaranteed. Thus, understanding your risk appetite before investing is essential. You can consider consulting a financial advisor to tailor strategies to your circumstances, risk appetite and financial goals.
Here are some advantages of using the 8-4-3 rule of compounding:
Here are some things you can do when using the 8-4-3 rule of SIP to enhance its efficacy:
Conclusion
The 8-4-3 rule is a simple yet powerful reminder of how compounding, patience, and consistency can help you build wealth over time. While it provides a structured approach, it is important to note that market conditions can influence actual returns.
An investor education initiative by Edelweiss Mutual Fund
All Mutual Fund Investors have to go through a one-time KYC process. Investors should deal only with Registered Mutual Fund (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit - https://www.edelweissmf.com/kyc-norms
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS. READ ALL SCHEME-RELATED DOCUMENTS CAREFULLY
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.