There is a very old saying, ‘Wealth attracts wealth’. One can accumulate more and more wealth by the way of compounding of interest. Compounding of interest is a powerful concept as not only your investment, but the interest on your invested money is also earning interest. So, the value of investment keeps escalating at an increasing rate (geometric rate) and not at a flat rate (straight rate). This concept is well explained with 15-15-15 and 15-15-30 rules. What is the 15-15-15 rule in Mutual Funds? What is the 15-15-30 rule in Mutual Funds? These simple rules would help you to know how much wealth you can accumulate in the next 15 or 30 years.
What are mutual funds?
If you are already familiar, skip this section.
Mutual fund schemes are investment vehicles which pool the money of several investors and invest it on their behalf in securities like stocks, bonds, money market instruments, etc. These funds are managed by highly qualified professionals who allocate the fund investment and attempt to produce capital gain and income for the fund investors. They charge a small fee for managing the money. Every mutual fund has its own objective and its portfolio is structured and maintained to meet that particular objective mentioned in the prospectus.
There are two ways of investing in mutual funds-
Lump sum payment – Under this, the investor invests the entire sum of money in one go.
Systematic Investment Plan (SIP) – In this type of investment, the investor invests a fixed sum of money into a specified mutual fund at a definite and regular interval, say weekly, monthly, quarterly, half-yearly, or yearly. Such fixed amount is as low as Rs 500 per month.
SIP is a planned approach to head towards investment and inculcates the habit of saving and creates wealth for the future. It is a flexible investment in which the investor can stop or increase or decrease the amount. Staying invested for long in mutual funds has allowed people to make huge sums of money.
What is the 15-15-15 Rule in Mutual Funds?
The rule of 15-15-15 mutual funds, states that if an investor starts a SIP of Rs 15,000 per month at an assumed CAGR (compounded annualized growth rate) of 15% for 15 years, it can fetch you a amazing wealth of Rs 1 Crore upon maturity. A sum of Rs. 27 lakh spreads over 15 years can give you such handsome returns. Investors would have question is whether one can earn 15% returns in these days when there is long term capital gain on mutual funds. Since we are talking about long term of 15 years, this is very much possible. However, one should invest in consistent performing long term equity funds to achieve this goal.
What is the 15-15-30 Rule in Mutual Funds?
There is one more rule, i.e. 15-15-30 which is even more lucrative.
If one invests a fixed amount of SIP of Rs 15,000 at an assumed CAGR of 15% for 30 years can provide you with the unimaginable return of Rs. 10 Crores. The amount of investment per month is same, the assumed CAGR is same, only the tenure has doubled, but it has multiplied the returns by 10 times.
Please note that CAGR here stands for Compounded Annualized Growth rate, which means average returns spread over a period of time, which means that same year it may be 20% while some year may be 5%. 15% is an average return of any good rated mutual funds. Since the investment period is 30 years, one should invest for 5-8 mutual fund schemes and review them every 5 years to ensure that their funds are performing well to achieve this goal of Rs 10 Crores.
Conclusion: The above concepts prove that, timing is not important for wealth creation. It is better to be late than never. The day that has passed was the best day for investment, but if not that day, then it is today to initiate it. Don’t think too much of the delay that has happened for investing money till yesterday, just go ahead and invest from today whatever small amount you can.
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What is 15-15-15 and 15-15-30 Rules in Mutual Funds
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