SIP strategy: 3 Bucket Formula to Automate Savings and Investments

SIP strategy: 3 Bucket Formula to Automate Savings and Investments

Photos: Pexels/Pixabay

Photos: Pexels/Pixabay

Salaried individuals are often confused about the right SIP strategy to follow. However, there is no single strategy that every one can follow.

Salaried individuals are often confused about the right SIP strategy to follow. However, there is no single strategy that every one can follow.

An individual’s investment strategy should be based on his/her financial goals and risk taking capacity.

An individual’s investment strategy should be based on his/her financial goals and risk taking capacity.

One way to go about is by automating savings and investments. Arun Kumar, VP and Head of Research at FundsIndia, suggests a 3 Bucket Approach for this.

One way to go about is by automating savings and investments. Arun Kumar, VP and Head of Research at FundsIndia, suggests a 3 Bucket Approach for this.

Kumar says it is a good practice to save at least 20-30% of your monthly income. You can follow the simple 3 Bucket approach to automate and invest your savings.

Kumar says it is a good practice to save at least 20-30% of your monthly income. You can follow the simple 3 Bucket approach to automate and invest your savings.

This bucket is for all your emergency requirements. Allocate 5% of your monthly salary to this bucket. Choose one good liquid fund for this bucket.

This bucket is for all your emergency requirements. Allocate 5% of your monthly salary to this bucket. Choose one good liquid fund for this bucket.

Bucket 1 – Safety Bucket

Bucket 1 – Safety Bucket

Arun says you should continue to add to this bucket till you have the amount equal to 6 months of your monthly spending. After this, shift this 5% savings to your long-term bucket.

Arun says you should continue to add to this bucket till you have the amount equal to 6 months of your monthly spending. After this, shift this 5% savings to your long-term bucket.

Bucket 1 – Safety Bucket

Bucket 1 – Safety Bucket

This bucket is for your short-term goals (which are coming up in the next five years)

This bucket is for your short-term goals (which are coming up in the next five years)

Bucket 2 – Short term Bucket

Bucket 2 – Short term Bucket

Allocate 5% of your monthly salary (or more based on your short-term requirements) to this bucket.

Allocate 5% of your monthly salary (or more based on your short-term requirements) to this bucket.

Bucket 2 – Short term Bucket

Bucket 2 – Short term Bucket

Arun says you can you can use a Low Duration or Short Term Debt fund. If you are not comfortable with debt funds, you can invest this amount into an FD.

Arun says you can you can use a Low Duration or Short Term Debt fund. If you are not comfortable with debt funds, you can invest this amount into an FD.

Bucket 2 – Short term Bucket

Bucket 2 – Short term Bucket

This bucket is for your long-term goals (which are more than 5 years away).

This bucket is for your long-term goals (which are more than 5 years away).

Bucket 3 – Long term Bucket

Bucket 3 – Long term Bucket

Allocate the balance of your savings (in this case 10% of your monthly salary) to this bucket and start a SIP into good equity funds.

Allocate the balance of your savings (in this case 10% of your monthly salary) to this bucket and start a SIP into good equity funds.

Bucket 3 – Long term Bucket

Bucket 3 – Long term Bucket

If you prefer active funds then choose a few good diversified funds (3 to 5) and if you prefer passive funds then split it equally across Nifty 50 Index fund and Nifty Midcap 150 fund, says Arun.

If you prefer active funds then choose a few good diversified funds (3 to 5) and if you prefer passive funds then split it equally across Nifty 50 Index fund and Nifty Midcap 150 fund, says Arun.

Bucket 3 – Long term Bucket

Bucket 3 – Long term Bucket

Disclaimer: This story is for informational purposes only. Mutual Fund investments are subject to market risks. Please consult your financial advisor before investing.

Disclaimer: This story is for informational purposes only. Mutual Fund investments are subject to market risks. Please consult your financial advisor before investing.