How Bucket Investment Strategy can help wealth creation in the long term?

How Bucket Strategy can help wealth creation in the long termHow Bucket Investment Strategy can help wealth creation in the long term?

Many of us would invest in equity or mutual funds or fixed income options. Sometimes, by getting tempted with returns, we might move money from one bucket to another bucket. This unplanned movement of funds can restrict us to get higher returns in the medium to long term. Here comes the bucket investment strategy. Under bucket strategy, we can bucket investments for short, medium and long term. This strategy can help in generating wealth in the long term. What is this bucket strategy and how does it work? How Bucket Investment strategy can help wealth creation in the long term?

Also Read: How to check whether you are high risk in debts?

What is Bucket Strategy in investment and how does it work?

Bucket strategy in simple terms is to segregate your investments into various buckets and invest accordingly. Bucket strategy can be used for wealth creation in long term + to get regular inflows. In this article, we would cover only on wealth creation in long term.

Here is a sample bucket strategy for wealth creation.

1) Bucket-1 (Short term) – Invest money for any emergency / liquidity needs for the next 3 years time frame.

2) Bucket-2 (Medium term) – Invest money you might need in between 3 to 7 years time frame

3) Bucket-3 (Long term) – Invest money which you would not need for the next 7 years time frame.

We can even expand them to 5 buckets or 7 buckets based on the individual need.

Where to invest money based on bucket strategy?

Let us check where you should invest your money based on this bucket strategy.

1) Bucket-1 (Short term) – < 3 years Time Frame

You should calculate how much money you might need as an emergency fund or liquid funds for the next 3 years time frame. You can choose any of the following investment options to invest for short term need.

i) Bank Fixed Deposits

ii) Ultra Short Term Funds

iii) Liquid Mutual Funds

2) Bucket-2 (Medium term) – 3 to 7 years time frame

Invest the money you need between 3 to 7 years time frame. You can invest in any of the following options

i) Medium term debt funds

ii) Multi asset mutual funds

iii) Balanced Mutual Funds

3) Bucket-3 (Long term) – > 7 years

Under this bucket investment strategy, one can invest money, which they do not need in the short term to medium term. You can invest in any of these investment options

i) Large Cap Index Fund or Large Cap Funds

ii) Midcap Funds

iii) Small cap funds

Investment in real estate also can fetch high returns. But liquidity is an issue.

How 3 Bucket Investment Strategy can create wealth in the long term?

Based on this bucket strategy, you would utilize the funds from bucket-1 for all your short term needs. Your bucket-2 would earn fixed income for medium term. Your bucket-3 would continue to grow in the long term. Here is an illustration that can help you understand this concept better.

1) Mr. Rajesh saved Rs 10 Lakhs till now

2) Can invest Rs 50,000 per month beyond current expenses.

3) Monthly expenses Rs 40,000.

4) Basic financial planning is done (life insurance and health insurance for self and family members).

5) Need Rs 2 Lakh per year for kids education for next 10 years. Assume he would take this out from savings, no separate plan required.

6) Need 6 months for emergency money (short term). It would be Rs 40,000 x 6 months = Rs 2.4 Lakhs.

7) Need Rs 5 Lakhs between 4-5 years for a foreign vacation (Medium term).

8) Want to create wealth for long term + for retirement. This would be the balance i.e. Rs 2.6 Lakhs ( 10 Lakhs – 2.4 Lakhs – 5 Lakhs) + 50,000 per month savings that needs to be invested.

Below are some rough computations. Actual returns might change based on investment dates (like monthly SIP). Also short and medium term investment options can generate some returns too which would be surplus.

Bucket – 1 – Short Term

It’s only for emergency funds to meet 6 months expenses. If this is not utilized, one can move these funds / excess funds to bucket-2 or bucket-3.

Bucket 1 – Short Term Goals
Year Year beginning balance New Investments Returns @ 6% on beginning balance Year end balance
1 240,000 0 14,400 254,400
2 254,400 0 15,264 269,664
3 269,664 0 16,180 285,844

Bucket – 2 – Medium Term

It’s only for short to medium term needs. If this is not utilized, one can move these funds / excess funds to bucket-3.

Bucket 2 – Medium Term Goals
Year Year beginning balance New Investments Returns @ 7% on beginning balance Year end balance
1 500,000 0 35,000 535,000
2 535,000 0 37,450 572,450
3 572,450 0 40,072 612,522
4 612,522 0 42,877 655,398
5 655,398 0 45,878 701,276
6 701,276 0 49,089 750,365
7 750,365 0 52,526 802,891

Bucket – 3 – Long Term

Bucket 3 – Long Term Goals
Year Year beginning balance Monthly @ 50K minus kids’ education of 2L Returns @ 12% on beginning balance Year end balance
1 260,000 400,000 31,200 691,200
2 691,200 400,000 82,944 1,174,144
3 1,174,144 400,000 140,897 1,715,041
4 1,715,041 400,000 205,805 2,320,846
5 2,320,846 400,000 278,502 2,999,348
6 2,999,348 400,000 359,922 3,759,270
7 3,759,270 400,000 451,112 4,610,382
8 4,610,382 400,000 553,246 5,563,628
9 5,563,628 400,000 667,635 6,631,263
10 6,631,263 400,000 795,752 7,827,015
11 7,827,015 600,000 939,242 9,366,256
12 9,366,256 600,000 1,123,951 11,090,207
13 11,090,207 600,000 1,330,825 13,021,032
14 13,021,032 600,000 1,562,524 15,183,556
15 15,183,556 600,000 1,822,027 17,605,582

Also Read: How to plan your financials if you have lost job?

These are for long term needs. There would be inflow through fresh investments + inflow through surplus from bucket 2 or bucket 3. You would not open your investment portfolio every day to check the ups and downs of stock markets and would avoid your BP and Sugar levels to go up. In the long term, such investments would turn always fetch higher returns.

The above is not comprehensive plan. This is just a simple plan on how an individual can create and plan their long term investments. This can be customized based on the individual needs, increase / decrease emergency money or medium term investments etc.,

If you enjoyed this article, share it with your friends and colleagues through Facebook and Twitter.

Suresh KP


  1. Thanks for the prompt response.
    Will definitely try it out.

    Also, i was wondering if you also do evaluation of stocks.

    I just purchased a few shares in SYNCOM FORMULATION, based on their last 4 quarter performance, and their annual performances, and also given their Low Debt to equity ratio.

    Is it possible to gauge whether this stock can be viewed as a possible multibagger in the long run?
    Could you please give your objective analysis?


    1. This penny stock was trading 6 years back at Rs 11 and last year it has fallen to Rs 0.61 and now grown to Rs 5.19. One should avoid such penny stocks as of now.

  2. Dear Suresh,
    Given a monthly surplus of Rs10000/, is there a practical/feasible solution where, after 15-18 yrs, one could end up with savings of Rs2 crore,
    With a combination of MFs and Direct stock market investments?

    1. This is very much feasible
      1) Invest 20k per month for next 20 years. With 12% annualized returns, the corpus can be created for Rs 2 Crores. However the question is today’s 2 crore value would be lower after 20 years. To tackle, go to point no.2
      2) Invest 10K per month. Increase this by 10% yearly. e.g. first year it would be 10,000 per month, second year, it would be 11,000 per month and next year, it would be 12,100 per month etc., This creates approx 4 Crores. If you cannot add 10% yearly, go to step-3
      3) Invest 10k per month. Increase this by 5% yearly, but invest any surplus / bonus of say 50K yearly into this. this can create 3.2 crores corpus. You can play with this based on how comfort you are.

      Major question in this entire process would be where to invest? You can invest in combination of index funds, diversified portfolio of mutual funds and debt. This combination can give you 10% to 12% returns (higher your risk, higher your be returns)

  3. Hi Suresh,

    Really simple and intriguing analysis with perfect examples n number crunching

    Thank you

  4. Hello Suresh,

    Good to know about various buckets savings plan.

    But am not aware of below concepts in investing, Is there any link to know more about these investments plan? How to invest etc…?

    • Ultra Short term Funds
    • Liquid mutual funds
    • Medium term Debt funds
    • Multi asset mutual funds
    • Balanced mutual funds

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