New Delhi, India

A Systematic Investment Plan or SIP has become one of the key investments in people's planning for their financial future and is believed to speed up the journey towards financial goals. 

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However, how simple an investment in SIP may sound, in reality, it involves some rules which can really up the game for the investors. 

In this week's Money-Wise, we try to understand the golden rules for investing in SIP for building long-term wealth. 

Rules of SIP

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Rule 555

This triple 5 rule is best for planning retirement savings. The rule states that the investor should retire five years before stipulated retirement, increase SIP by 5 per cent every year, and aim to create a fund of Rs 52.8 million (approx. $620661) by the age of 55.

15x5x3 Rule

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As per this rule, the principal amount should be invested in SIP for 15 years, and it should be then extended for the next 5 years and again extended for 3 years to churn a good profit.

18x15x12 Rule

This rule should be implemented when you are doing financial planning for your child. The rules say that the investment should be done before your child turns 18. The monthly SIP deduction ideally should be Rs 15,000 (approx. $176.32) and the investor should target a 12 per cent return.

Also Read: Money-Wise | SIP or lumpsum: What is a better mutual fund investment?

10x20x15 Rule

This rule advocates investing a monthly SIP of Rs 10,000 for 20 years and aiming for a 15 per cent return.

15x15x15 Rule

As per this rule, investors should invest in SIPs across 15 years an amount of Rs 15,000 monthly and target an annualised return of 15 per cent. 

8-4-3 Rule

The 8-4-3 rule demonstrates how a SIP grows through the years because of the power of compounding. 

The rule says that the investments see steady growth in the first eight years and are likely to bring an average annual return of 12 per cent. 

From the ninth to the twelfth year, the investment doubles and sees the same growth which took place in the last eight years because of the power of compounding.

Watch: Asian Stocks Edge Higher as Investors Focus on Fed's Next Move

After the last three years, the SIP investment achieves exponential growth and once again doubles.

7-5-3-1 Rule 

This rule says that equity investments generally perform well in seven years, and their profit-churning capacity can be further enhanced by distributing funds in five categories, which also mitigates concentrated risks.

Diversification of funds is important to bring stability to the investment and ensure growth in investment portfolios. 

The investor can diversify funds in these categories: High-Quality Stocks (Large Cap Stocks), Value Stocks, GARP Stocks (Growth at Reasonable Price), Midcap or Small Cap Stocks and Global Stocks. 

The number "3" stands for patience in dealing with low returns, minimum returns, and at times even negative returns when the market turns volatile. 

And "1" refers to increasing the SIP amount for fighting the increasing inflation. A small increase in monthly SIP deductions can bring a big difference in profits.