Most people all over the country are obsessed with becoming a crorepati. Either they focus on building a promising career or grow a profitable business. But what if you could build your first crore of your wealth by just investing ₹15,000 per month? Sounds enticing right?
The 15*15*15 rule of mutual funds makes it possible. It is a simple formula that suggests you can achieve a corpus of ₹1 crore by investing just ₹15,000 per month for a duration of 15 years in an asset that provides an annual return of 15%. It’s a powerful illustration of the magic of compounding.
Before we delve deeper into the 15*15*15 rule, let’s begin by understanding the concept of compounding.
What is Compounding?
When it comes to discussions about mutual funds, you’ll often hear the term ‘Compounding’ thrown around. But what does it really mean? In simple terms, compounding is the phenomenon that turns a small, regular investment into a significant sum over time.
In essence, compounding is your key to making your money work harder for you. When you reinvest your returns within your initial investment period, the power of compounding kicks in, making your investments more valuable and, importantly, more profitable. This is made possible because the returns earned during one compounding period generate interest during the next.
How does Compounding Work?
For example, let’s say you created a SIP of ₹15,000 per month to invest in a mutual fund for 15 years with a 15% annual return.
Here’s how your SIP schedule can look over the next 15 years:
| Years | Invested Amount (in ₹) | Returns Earned (in ₹) | Total Investment (in ₹) |
| 1st Year | 1,80,000 | 15,317 | 1,95,317 |
| 3rd Year | 5,40,000 | 1,45,192 | 6,85,192 |
| 6th Year | 10,80,000 | 6,76,793 | 17,56,793 |
| 9th Year | 16,20,000 | 18,12,717 | 34,32,717 |
| 12th Year | 21,60,000 | 38,93,769 | 60,53,769 |
| 15th Year | 27,00,000 | 74,52,946 | 1,01,52,946 |
Compounding returns grows your investment over time. It is advisable to know your financial goals and risk tolerance before investing.
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At its core, compounding is the bedrock of investment strategies, and it’s something you can leverage to your advantage when investing in mutual funds. The key is to start early, invest consistently, and let compounding work its financial magic for you.
What is the 15*15*15 Rule in Mutual Funds?
Let’s break down the power of smart investing using the 15*15*15 rule:
Step 1: Initial Investment
Imagine you start by investing ₹15,000 per month for 15 years with an impressive 15% return rate. After this time, your total wealth will grow to a substantial ₹1,01,52,946, which is over ₹1 crore.
Step 2: Compounding Magic
Now, let’s apply the compounding principle. If you stick to the same returns and contributions for another 15 years, the amount you accumulate skyrockets.
Beyond the 15*15*15 Rule
As we know, the power of compounding provides astonishing returns. But let’s go beyond the limits to explore what the 15*15*15 rule can do!
| Years | Invested Amount | Returns Earned | Total Investment |
| 15 Years | ₹27,00,000 | ₹74,52,946 | ₹1,01,52,946 |
| 30 Years | ₹54,00,000 | ₹9,97,47,309 | ₹10,51,47,309 |
| 40 Years | ₹72,00,000 | ₹46,38,56,332 | ₹47,10,56,332 |
Here are some insights from the above table:
- In simple terms, if you continue with your investment plan for the next additional 15 years. Then, the power of compounding will provide a return 19.5 times the total invested amount, i.e. ₹54,00,000.
- But again, if you continue to invest for the same strategy till your retirement, for 10 more years, your investment amount will grow beyond 65 times your total investment, i.e. ₹72,00,000.
This is the magic of the 15*15*15 Rule of Mutual Funds. It’s all about smart, consistent investing and letting the power of compounding work wonders for your financial future. You can easily determine your investment needs based on your financial goals by using an SIP calculator.
Does the 15*15*15 Rule Actually Work?
When investing in SIP with the 15*15*15 rule, there are three essential factors that make it happen:
- Number of Years
- Invested Amount, or SIP Amount
- Return on Investment
Here, the first two factors are in control of your decision-making. But when it comes to return on investment, you have to be a smart investor to achieve a 15% CAGR over 15 years. One should keep in mind that there is no fixed rule that works time and again for all the years. A 15-year period is a long time, and several changes may take place.
Apart from the above factors, there are two external factors that decide the in-hand return on your investment.
- Inflation: India has witnessed an average inflation of 6.02% over the last 10 years. So even if you achieve more than 15% returns on your investment. Inflation will be another factor hampering your returns.
- Tax on Investments: Although the applicable tax depends on the type of investment. But when the investment of ₹1,01,52,946 is withdrawn with a capital gain of ₹74,52,946. Long-term capital gains tax is applied at a rate of 10% if the profits are generated from shares and equity-oriented mutual funds. This tax will be assessed on the basis of the income tax slab rate if you invested in debt or other securities.
Also Read More About Mutual Fund Investing Rules
This article has been written for educational purposes only. The securities quoted are only examples and not recommendations.
FAQs
What is the 15x15x15 mutual fund rule?
The 15x15x15 mutual fund rule is a guideline that suggests investing ₹15,000 per month for 15 years with an assumed annual interest rate of 15% to accumulate Rs. 1 crore at the end of the investment period.
Is the 15% annual return guaranteed?
No, the 15% annual return is an assumption based on the Compounded Annual Growth Rate (CAGR). Actual returns can fluctuate, and investments in mutual funds are subject to market risks.
Is this rule suitable for all types of mutual funds?
The rule is a simplified guideline and may not be suitable for all types of mutual funds. It’s important to consider your investment objectives, risk tolerance, and the specific fund you are interested in.
Does the rule consider market fluctuations?
The rule assumes a constant 15% CAGR, but market returns can be volatile. It’s essential to be aware of market fluctuations and adjust your expectations accordingly.
Is there a guarantee that I'll reach the specified wealth target?
No, the rule is a simplified estimation. Achieving the target wealth depends on various factors, including the actual performance of the mutual fund, market conditions, and economic factors.
Should I consult a financial advisor before following this rule?
It’s generally advisable to consult a financial advisor who can provide personalized guidance based on your financial situation, goals, and risk tolerance. They can help you create a tailored investment plan.
