15×15×15 Rule in Mutual Funds | How to get your 1st Crore
In the era of diverse investments, the journey to accumulating wealth may seem daunting, but with the right strategy, it’s achievable for anyone. One such strategy gaining traction is the 15×15×15 rule in mutual funds. This rule offers a simple yet powerful approach to building wealth steadily over time. Whether you’re a novice investor or a seasoned pro, understanding this rule can pave the way for reaching your first crore, a significant milestone in financial success. So, let’s explore with this article delight into how this rule works and how it can guide you on your wealth-building journey.
What Is Compounding?
Before we get into what the 15*15*15* rule is, it would be useful to know how compounding works.
In investments, compounding means that interest is calculated on the principal amount and the interest already earned. Simply put, you’ll earn interest on interest.
Suppose you have Rs 1,000 in a savings account that yields 5% interest annually. In the first year, you would earn Rs 50, resulting in a new balance of Rs 1,050. In the second year, you would earn 5% interest on the bigger sum of Rs 1,050, or Rs 52.50, resulting in a new balance of Rs.1,102.50 at the conclusion of the second year.
Knowing this, leads us to one of the most popular phrases in mutual fund and stock investments, ‘the magic of compounding’
The magic of Compounding in Mutual Funds
Albert Einstein is rumored to have remarked that the most powerful force in the cosmos is the principle of compounding. This power manifests itself in investment and finance through the concept of compounding returns. Compound interest means that you begin to earn interest on the interest you get, which accelerates the rate at which your money grows.
Mutual funds are designed to maximize the impact of compounding. If you invest with a long-term view, then the power of compounding will be maximized, allowing your investment to expand. Unique to compounding is the fact that your previous investment, the return on investment, and each month’s new investment all contribute to additional gains.
What Is The 15*15*15 Rule In Mutual Funds?
The 15×15×15 rule in mutual funds suggests that if you invest Rs. 15,000 per month for 15 years, and your mutual fund earns an average annual return of 15%, you could potentially accumulate a corpus of Rs. 1 crore. This rule highlights the power of regular investing, compounded growth, and the significance of long-term commitment in wealth accumulation through mutual funds.
An important point to keep in mind is that although the assumed CAGR ( To know more about CAGR , https://kuvera.in/blog/cagr-meaning-formula-and-advantages/ ) is 15%, an investment can yield 20% in one year and 7% in another. This is due to regular and frequently unanticipated market movements. The assumption is based on an average rate of 15% during the duration of the investment.
Limitations of 15 15 15 rule of mutual fund | 15×15×15 Rule in Mutual Funds
The rule does not account for inflation, which erodes the purchasing power of money over time. Mutual funds incur management fees and other expenses, which can reduce overall returns. Failing to consider these costs may result in a lower-than-expected corpus accumulation. Also the rule provides a general guideline and may not be suitable for everyone’s financial situation, goals, and risk tolerance.
If you use a SIP calculator, you will see that investing Rs 15,000 every month for 15 years in succession, you will invest a total of Rs 27,00,000. But, after 15 years, with 15% return you get a total of Rs 1,01,52,946.
What should be the ideal earnings to invest Rs 15,000 a month
If your monthly income is Rs 80,000 or around, you can invest Rs 15,000 per month.According to a prominent financial rule, 20 percent of the income should be saved and invested.If your monthly income is Rs 80,000, then 20 per cent of it is Rs 16,000.Here you have to invest Rs 15,000 a month, which you can do if you follow the investment rule.If you start this investment at the age of 30, you can become a crorepati at the age of 45.
Is a 15% return for 15 years possible?
Many of the prominent short-, mid- and small-cap equity funds have given returns of over 15 per cent in the last decade, so a 15 per cent return for 15 consecutive years is quite a possibility.
Here’s the list of 5 equity schemes that offered more than 15% return in 10 year horizons .
Axis Midcap Fund ( 19.66 )
Canara Robeco Consumer Trends Fund ( 15.44 )
Canara Robeco Emerging Equities Fund ( 18.94 )
DSP Small Cap Fund ( 19.40 )
HDFC Small Cap Fund ( 15.56 )
Final Takeaway | 15×15×15 Rule in Mutual Funds
There are no shortcuts to financial freedom or a comfortable retirement. However, there are guidelines and rules that can help you create wealth for the future. One of these useful mutual funds SIP related rules is the 15*15*15* rule. It can help you generate up to ₹1 Cr in 15 years with the magic of compounding. The 15*15*15* rule is a useful guideline that can serve as a benchmark to evaluate your portfolio.
Read also: 3 Wealth Lessons From The Richest Man in Babylon https://thebrightdelights.com/3-wealth-lessons-from-the-richest-man-in-babylon/