There are no shortcuts to financial freedom. Wealth creation requires consistent and disciplined investments in the right assets. However, to ensure you are creating wealth efficiently, it is important to understand a few concepts. The 15*15*15 rule is among the vital ones to know. Using this concept carefully can help you generate up to Rs 1 crore in 15 years through mutual funds, owing to the power of compounding.
Here is everything you should about the 15*15*15 rule and whether it works:
What is compounding?
In simple terms, compounding means you earn interest on the principal amount and the interest already earned. So, you earn interest on interest, which helps you accumulate a significantly larger corpus in the long run, provided you make your mutual fund investments early. The sooner you start investing in mutual funds, the more wealth you can create over time.
What is the 15*15*15 rule?
As per the 15*15*15 rule, if you make a SIP (Systematic Investment Plan) of Rs. 15,000 per month in a mutual fund scheme, which on average offers a CAGR (Compounded Annualized Growth Rate) of 15% interest per annum for 15 years, you can accumulate a final corpus of over Rs. 1 crore, owing to the power of compounding.
In this case, even when your investment amount is only Rs. 27 lakhs (180 months x 15,000), you will get Rs. 1 crore by the end of the 15-year investment period because of the compounded interest per annum. Your profit, in this case, equals Rs 73 lakhs. A minimal investment of Rs. 27 lakhs spread over 15 years can help create such a large sum of wealth.
Further, if you increase your investment horizon to 30 years, the same mutual funds with a SIP of Rs. 15,000 per month at 15% CAGR can accumulate more than Rs. 10 crores. Just by doubling the investment tenure, the mutual fund returns increase by ten times. In this case, your investment sum is Rs 54 lakhs. However, due to the power of compounding, your mutual fund investments rise to Rs. 10 crores upon maturity.
This is why the power of the compounding phenomenon is considered the most substantial aspect of wealth creation.
Does the 15*15*15 work?
Technically, given the historical performance of the market, the 15*15*15 rule is capable of fulfilling investor expectations. However, the result of this investment strategy depends on the CAGR, which is the average return spread over a period of time. This implies that the CAGR could be higher than 15% in some cases, and in other cases, it could be down to 5%. Hence, the 15*15*15 rule functions as per the CAGR.
That said, going by the past performance of mutual funds, typically, these investments generate returns of 15% or more. This implies that the 15*15*15 is applicable and works.
However, as a wise investor, you should invest in different mutual funds, monitor your investments, review their performance every five years to ensure your funds are performing as planned. You can use the Tata Capital Moneyfy app to choose your mutual fund investments and also track, review and rebalance your mutual funds’ portfolio over time to achieve the set target.