What is the 8-4-3 Rule in SIP investing?

The 8-4-3 Rule is a simple SIP strategy that encourages investing ₹8,000 per month for 4 years and holding it for 3 more years, aiming to build long-term wealth through compounding.

Who should follow the 8-4-3 Rule?

The 8-4-3 rule is ideal for beginner and disciplined investors who want to build wealth systematically through mutual funds without trying to time the market.

Does the 8-4-3 Rule work for all types of mutual funds?

It works best with equity mutual funds or flexi-cap funds where compounding over the long term can yield higher returns. It's less effective with ultra-short or debt funds.

Is the 8-4-3 Rule guaranteed to generate returns?

No investment is guaranteed, but the 8-4-3 Rule relies on the principle of compounding and time in the market, which historically helps reduce risk and improve potential returns.

Can I adjust the amounts in the 8-4-3 Rule?

Yes, the ₹8,000 is a sample amount. You can invest based on your income and goals, as long as you stay consistent and follow the principle of long-term investing.

8-4-3 Rule of SIP - How Does That Work?

AssetPlus
Jun 20
4 min read

Updated: Aug 6

Table of Content:

Introduction.
What is the 8-4-3 Rule of SIP ?
Phase 1: The First 8 Years – Building the Foundation.
Phase 2: The Next 4 Years – Acceleration.
Phase 3: The Final 3 Years – Exponential Growth.
Why the 8-4-3 Rule of SIP Works?
A Real-World Illustration.
Common Misconceptions.
Final Thoughts.

Introduction

The 8-4-3 Rule of SIP isn’t just a catchy phrase - it’s a powerful way to visualize how long-term investing and compounding work together to build wealth. Most investors start SIPs hoping to achieve big results, but many underestimate how returns accelerate in the later years.

This rule simplifies that journey by breaking it down into three distinct phases over 15 years: 8 years of consistent investing, followed by 4 years of growth momentum, and finally, 3 years of explosive compounding.

Let’s dive deeper into how 8-4-3 Rule of SIP works and what it teaches us about patience, timing, and smart investing.

What is the 8-4-3 Rule of SIP ?

The 8-4-3 Rule divides a 15-year SIP (Systematic Investment Plan) journey into three phases:

First 8 years: You consistently invest a fixed amount monthly.
Next 4 years: You continue investing and start seeing sharper growth due to accumulated returns.
Final 3 years: Your money experiences exponential growth as compounding fully kicks in.

It’s a mental model, not a rigid investment strategy. The idea is to help investors understand how wealth grows slowly at first, then faster, and then explosively as the years go by.

Phase 1: The First 8 Years – Building the Foundation

In the first 8 years of your SIP, the primary goal is accumulation. Your monthly contributions are building up a base corpus. During this phase, returns may feel modest, especially in volatile markets. However, this foundation is critical - it sets the stage for future returns to multiply.

For example, if you invest ₹10,000 per month at an assumed 12% annual return, you would contribute ₹9.6 lakh in total and see it grow to about ₹15.7 lakh by the end of Year 8.

Phase 2: The Next 4 Years – Acceleration

Between Year 9 and Year 12, your corpus begins to grow more rapidly. Why? Because the returns you earned during the first 8 years now start earning their own returns. This is the compounding engine gaining momentum.

Continuing with the same SIP of ₹10,000/month, your corpus could rise to around ₹30.8 lakh by the end of Year 12.

Phase 3: The Final 3 Years – Exponential Growth

Years 13 to 15 are when compounding hits full force. Even if your SIP amount doesn’t increase, the accumulated wealth starts generating substantial returns. In these 3 years, you may witness growth that matches or exceeds what was earned in the previous 4 years.

By the end of Year 15, your SIP could have grown to ₹47.6 lakh - all from a ₹18 lakh total investment.

Why the 8-4-3 Rule of SIP Works ?

This rule isn’t magic—it’s just the power of mathematics and time. The longer your money stays invested, the more time it has to compound.

Here’s why it works:

Time is the Biggest Multiplier: The early years allow your investment to grow slowly, but that growth sets the stage for exponential returns.
SIP Discipline: Investing consistently eliminates emotion and ensures contributions regardless of market swings.
Rupee Cost Averaging: By investing regularly, you buy more units when markets fall and fewer when they rise - averaging out your cost efficiently.

A Real-World Illustration

Let’s take a simple example assuming ₹10,000 SIP per month for 15 years at 12% CAGR. Here's how the investment grows over time:

Year	Total Invested (₹)	Corpus at Year-End (₹)	Growth in That Year (₹)
1	1,20,000	1,26,827	6,827
2	2,40,000	2,72,998	1,46,171
3	3,60,000	4,34,556	1,61,558
4	4,80,000	6,12,623	1,78,067
5	6,00,000	8,08,423	1,95,800
6	7,20,000	10,23,280	2,14,857
7	8,40,000	12,58,621	2,35,341
8	9,60,000	15,15,986	2,57,365
9	10,80,000	17,97,046	2,81,060
10	12,00,000	21,03,602	3,06,556
11	13,20,000	24,37,595	3,33,993
12	14,40,000	28,01,111	3,63,516
13	15,60,000	31,96,389	3,95,278
14	16,80,000	36,25,831	4,29,442
15	18,00,000	40,91,024	4,65,193

Note: These are illustrative values based on consistent SIPs and 12% CAGR. Actual results may vary.

Look at how much growth comes in the final few years - it’s the clearest evidence of the compounding snowball in motion.

Disclaimer: Mutual Funds are subject to market risks. Please read all scheme related documents carefully.

Common Misconceptions

Let’s clear up a few myths:

It’s not a shortcut to stop investing after 4 years. The name refers to phases of growth, not an investing instruction.
Returns are not guaranteed. These are projections based on historical averages, not fixed outcomes.
It’s not a replacement for diversification or goal-based planning. Use this as a motivational framework, not a rigid formula.

Final Thoughts

The 8-4-3 Rule of SIP is not about doing less, but doing it right and doing it early. It reminds us that wealth doesn’t grow linearly - it grows slowly at first, then rapidly with time.

So, if you’re just starting out, remember:

Be early.
Be consistent.
Be patient.

That’s all it takes to build real wealth with SIPs.

Want to Begin Your SIP Journey?

Start with whatever amount you can, and let time do the heavy lifting. Need help setting it up? Talk to a mutual fund expert at AssetPlus today.