Mutual funds are a preferred investment option. It is because investing in mutual funds benefits investors in many ways. And what if we tell you that you can accumulate your first crore by investing in mutual funds?
With the 15-15-15 rule of investing in mutual funds, you get to know how much money to save, how much to invest, how long to invest and at which rate of return to invest to be able to generate one crore. To know how the technique works, keep reading till the end. But first, let’s learn about compounding and its magic.
What is compounding, and how does it work?
You must have heard of the term while reading or discussing mutual funds. Compounding refers to accumulating or growing wealth over time. Here, you invest a certain sum of money periodically, which is usually not big, and in the end, you can accumulate a large number of funds.
In investments, it means earning interests on interests. This means the interest you earn on your investment will add to the principal amount next year. In the following year, interest is calculated on both the amount you invested and the interest you earned the previous year. This technique has led to exponential wealth accumulation over the years.
There are two friends, A and B. Both invest Rs.1,00,000 in certain types of investments. The investment’s interest type of A is simple interest, and for B, it is compounded interest. The value of their investments after 5 years would be Rs 1,70,000 (for A) and Rs 2,01,136 for B. Year after year, the gap would widen. Hence, a huge difference in accumulated amounts occurs even after investing the same amount. That’s the magic of compounding.
The 15-15-15 rule
Now, let’s have a look at what the rule says. It states that if you start a SIP (Systematic Investment Plan) of Rs 15,000 for 15 years, at the end of the 15th year, you’ll be able to accumulate around Rs.1 crore. The total investment on the part of investors for 15 years would be around Rs 27,00,000.
However, if you choose to keep investing Rs 15,000 monthly for another 15 years, you’ll be able to build up around Rs 10 crores at an estimated 15% CAGR.
However, you must note that there will be times when returns will not be consistent. Your investments can generate 30% returns in one year and 10% in others. The 15% rate is an average value. Also, this rule helps you estimate returns and does not guarantee the same returns as investments are subject to market volatility.
Points to keep in mind
- It would help if you had a lot of patience through your investment journey. Investing is not a get-rich scheme.
- Being disciplined can take you to a place you wouldn’t have imagined. You’re wrong if you think not paying your SIPs won’t affect the end result. It certainly will.
- This may sound very obvious but starting as early as possible is the only key to maximise your returns. Although financial experts recommend starting in your 20s, it doesn’t mean you should ignore if you are in your 30s, 40s or even 50s. Always remember that it is better late than never.
- Selling your investments before the decided period because they are not performing well is the worst thing you can do. People with a short-term psyche often fail and complain.
- Remember that your investments may also go down or perform negatively, which is normal. There is no need to panic during such circumstances.
