‘Kaun Banega Crorepati’ – There is no Indian, who does not know about this popular game show in India. Just by giving answers to the 16 questions, you can become a crorepati. However, for that to happen, luck must on your side to find yourself in the hot seat and if not, then you may have to return empty-handed. If you also nurture the dream of becoming a crorepati and wondering how to become one, then you can have Rs 1 crore in your bank account by following the 15x15x15 rule and for that, you have to invest wisely in the mutual funds.
What is 15x15x15 Rule in Mutual Funds?
For a beginner, new into the world of investing, understanding the concept of mutual funds may be a challenging task. Furthermore, it is hard to determine how much amount to invest and for how long? So, before investing, it is important to know what exactly is a mutual fund. A mutual fund is essentially a professionally managed investment fund. Here, the funds of the investors are pooled, which are then invested or diversified in various securities like:
- Government securities
- Debt securities
- Corporate bonds
- Money market instruments
Now, here comes the 15x15x15 rule in the mutual funds. It is not rocket science but a very simple rule. Well, it simply states that if you invest Rs 15,000 as Systematic Investment Plan (SIP) per month for the 15 years at the compound annual returns of 15%, then you will be able to accumulate Rs 1 crore as a maturity amount over the period of time. Now, a question will certainly crop up in your mind as how this is possible as you are only investing Rs 27 lakh in the 15 year time period? You are absolutely right and it is possible because of the power of compounding.
Important Point to Remember: The 15% Compounded Annual Growth Rate (CAGR) over the years is just an average assumption. It is important to note that no market can guarantee to provide the 15% returns consistently. If the market is bullish, then the returns can even range between 30 to 40% or even more. On the contrary, if the market is bearish, then the mutual fund performance can plunge between 5 to 10%.
What is Power of Compounding?
The power of compounding is considered as one of the most prominent factors when it comes creating the wealth in the mutual funds. Even the great Nobel Prize winner and physicist, Albert Einstein has realized the importance of compounding and terming it as an ‘Eighth Wonder of the World’ by providing the following quote:
“Compound interest is the eighth wonder of the world. He who understands it earns it … he who doesn’t … pays it.” -Albert Einstein
Compounding essentially means that the value of an investment can increase over a period of time. The longer the time frame, the greater the value.
By taking the 15x15x15 rule in mutual funds into the consideration, one thing is pretty much crystal-clear that time and not timing is vital when your utmost goal is to create a good wealth and achieve your financial objectives. It is better late than never. It is quite better to start investing early, attain excellent wealth and chase your dreams easily.