Rule of 15*15*15 in Mutual Funds

What if I said that you could accumulate Rs 1 Crore by investing Rs 15,000

It is possible, but it seems impossible.

It isn't true. If you only invest Rs 15K monthly, you can build a huge corpus of Rs 1. crore.

In this blog, I will talk about the rule of 15x15x15 as well as the compound interest, which is the key to success.

The Magic of Compounding

Ace investor Warren Buffet Credited "Compounded Interest" He is the secret to his immense success.

Let's understand it with an example

Let's say you invest Rs 15000 each month for 15 years, and earn 15% returns. After 15 years, your accumulated wealth will amount to Rs 10027601 (Rs 1.00 crore).

The compounded principle states that if you apply the same returns for the same contribution for fifteen more years, your accumulation will increase exponentially. As they call it, the rule 15*15*30 helps you accumulate Rs. 103849194 or Rs 10.38 Crore.

Can you see the difference? It took only 15 years to make 10x more money, despite having invested Rs 27 Lakh.

This is compounding at its best.

The Rule 15x15x15

If you make Rs 15000 monthly via SIP in an equity mutual fund that yields an average 15% return, you will likely become a Crorepati.

The total amount of your investment is Rs 27 lakhs (Rs 15000 x 180 Months).

You can make Rs 73,00,000.

Similar results can be achieved if you extend the above 15-year period by 10 years. Your wealth will increase 10x.

Money invested over 30 years is Rs 54 lakhs (Rs 150000 x 360 months).

Money accumulated - Rs 10.38 Crore

Profit = Rs 9.84 Crore

How compounding in Mutual Fund Works?

The most common term used in mutual funds is compounding. We should therefore understand compounding by using an example.

Everyone in India loves cricket, and we cannot forget Sachin Tendulkar, the little master of cricket. Tendulkar is regarded as one of the most important players of the century and has many records of his name.

Ever thought of how to do it?

Tendulkar began playing cricket at 16 years old. By the time he was 30, Tendulkar had already run over 10K runs. This is when many others begin their careers, and it is often lost.

Let's now look at Robin Singh, a notable fielder, and batsman. Singh began his career at the age of 25 and by the time that he retired, had only managed 2k runs. Does this mean Singh was not a good player? Not necessarily.

Let's see what we can learn from these cases.

It's simple: the sooner you start, the better you will become.

The same principle applies to finance, especially investing. The quicker you begin investing, the more wealth will you build over time. This is the basic principle/theory of compounding.

What is compounding?

Let's understand it with an example. 

Let's say Mr. A started investing at the age of 22 and stopped investing when he was 30 years old. His friend, Mr. B began investing at 30 years, and he retired at 60 years.

The table shows that Mr. A was a smart investor and accumulated 33.9x wealth over 30 years. As an example, Mr. A only invested for 10 years (120 monthly) and contributed Rs 2000 per month. Mr. A began his investment at age 20 and stopped when he turned 30. Mr. B, on the other hand, is a lazy investor. He started investing at age 30 and continued to invest until he retired (at 60 years old). Mr. B didn't accumulate as much money despite being invested for 30+ years and continuing to invest for another 30+ years. It is because he started early.

Key Learnings

It is important that you remember that money is a prolific resource in nature. The proverb "Money is prolific in nature" must be familiar to you.Paisa Paise Ko Kheechta Hai. This means money can be made to get more money. Compounding is a simple yet powerful concept that is both compelling and straightforward. If they do it correctly, people don't need to worry about their retirement or when their age will be declining.

Compounding creates a multiplier effect, where the initial capital earns interest for the first year and the interest earned in the subsequent years.

The conclusion from the Article

We can conclude that compounding by its nature is a long-term strategy. Compounding is a way to build wealth over the long term if you have a mutual fund. Mutual funds allow you to switch between categories, redeem at any time, have high transparency, and are the easiest way to get involved in the equity markets. Mutual funds are a great choice for wealth creation and investment. All you have to do to reap the benefits of compounding is to start early.

Peers may say "Abhi Time Hai" but you can decide what you want. You want to be smarter than Mr. A or trail in the race like Mrs. B.

Happy investing, and good luck for the future!