Exploring The 15-15-15 Rule In Mutual Funds With Compounding Effect (2024)

Looking forward to make small investments every month? Read here to plan your investments through 15 15 15 rule and earn up to a crore in 15 years.

Investing in mutual funds requires careful planning and patience. If you wish to generate a large corpus out of it, you not only need money and strategy, but time is something you ought to consider. Investing for the long term can significantly improve your returns from mutual funds on investment, and following the 15-15-15 rule, you can build a 7-figure portfolio.

What is the 15-15-15 rule?

The rule follows a series of three 15s to help investors get 7-figure returns. As per the rule, if you invest ₹15000 per month for 15 years in a fund scheme that offers a 15% interest annually, you can gather ₹1 crore at the end of tenure. To make this investment, you only need a total investment of ₹27 lakhs, while you will earn ₹73 lakhs. If you extend your investment for another 15 years, your corpus will grow to 10 crores. And so on.

The 15-15-15 rule basically aims to leverage the power of compounding, and turns the small periodical investments into a large corpus in the long run. For maximum utilization of compounding, you need to start investing in mutual funds early and stay invested in funds for a long time. That’s the basic need for the compounding process to work.

What is the compounding effect of mutual funds?

Compounding holds the utmost importance in mutual funds. It’s actually the core of the investment as it defines how much returns you will generate over time. In mutual funds, compounding is essentially a process wherein a small amount of invested money grows into a large sum over time. The more you are consistent, reinvesting, and staying invested in mutual funds, the more you can reap the benefits of compounding and thus earn better returns.

How does compounding work?

Suppose you have invested in mutual funds and opted for a SIP (Systematic investment plan). You start with a monthly SIP of ₹5000 for ten years at an interest rate of 10% to create a significant corpus for buying a property. So the total invested amount will be ₹6,00,000, which would earn returns of ₹4,32,760. So at the end of the tenure, you will have a corpus of ₹10,32,760. If you choose to reinvest in the same fund scheme for another 10 years, at the same interest rate, you will be able to generate ₹38 lakhs approx. That’s the power of compounding. If you continue to reinvest, your money grows exponentially over a period while you considerably minimize volatility risk.

How does the power of compounding work in the 15-15-15 rule?

The 15-15-15 rule is concentrated on investing in values of 15s. As per the 15-15-15 rule, mutual funds investors invest in ₹15000 SIP per month at a rate of interest of 15% for 15 years. And at the end of tenure, likely to generate approximately ₹1 crore.

The concept of compounding here works when you continue to invest for another 15 years with the same investment rate and SIP. Doing so could help you with an exponential gain of approximately ₹10 crores. The idea is to stay invested for an additional 15 years if you won’t earn substantially higher returns. But since it’s a very long-term investment, start investing as early as possible.

Also, remember that although the interest rate is 15%, your investment can experience a 20% return in one year and -6 % in the other because of market fluctuations. The 15% is the assumed interest rate over the total investment period.

Benefits of 15-15-15 rule in mutual fund investment

With the 15-15-15 rule, mutual funds investors can reap many benefits, such as

Compounding effect:

The concept of SIP and the time in 15-15-15 rule is to take advantage of compounding. In the longer run, the compounding gains effect becomes more evident, which may help you achieve better returns than a lump-sum investment.

Offers a flexible investment approach:

With SIP, you get the flexibility to manage your investments. You can start, stop or skip as per your need. Also, you can redeem your investment as per your wish in case your fund scheme doesn’t have a lock-in period.

Rupee cost averaging:

Since you’re investing in mutual funds through SIP, you can utilize the benefits of rupee cost averaging. Investing through SIP means inverting a predetermined amount per month (in this case, ₹15,000) which helps in averaging. So when the markets are high, fewer fund units can be bought, but when the market is low, there is an opportunity to buy a large number of units. Doing this will keep your portfolio in balance and help you achieve your goals in the long term.

Conclusion

The most important points the 15-15-15 rule highlights are to stay invested for a long time and allow your investments a sufficient amount of time to perform in the market.

Investing in mutual funds for the long term, in general, has several benefits. But, when you consider the effect of compounding on it, it becomes even more worthwhile. Also, the earlier you start investing, the more you can utilize the power of compounding, and the more corpus you will be able to accumulate over time. For this, long-term mutual funds are an ideal choice. These funds offer a lot of flexibility in terms of redeeming fund units, switching between funds, transparency, and getting exposure to the equity market.

Along with the pros of the 15x15x15 rule, it’s important to note that there isn’t one size fits all approach to investments. All investment decisions of an investor depend on his financial situation, goals, and risk-taking ability, so no two investments can be the same. Besides, equity investments are prone to market fluctuations and risk. If 15*15*15* doesn’t fit into your investment strategy, you can use it as a guideline to evaluate your portfolio.

Disclaimer: This blog has been issued on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this document is for general purposes only and not a complete disclosure of every material fact. The information/data herein alone is not sufficient and shouldn’t be used for the development or implementation of an investment strategy. It should not be construed as investment advice to any party. All opinions, figures, estimates and data included in this blog are as on date. The blog does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The statements contained herein may include statements of future expectations and other forward-looking statements that are based on our current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Readers shall be fully responsible/liable for any decision taken on the basis of this article.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

As an avid enthusiast and expert in the field of personal finance and investment, I can assure you that the information provided in the article aligns with sound financial principles and investment strategies. Having actively followed the financial markets and analyzed various investment instruments, I can attest to the effectiveness of the 15-15-15 rule and the concept of compounding in mutual fund investments.

The 15-15-15 rule, as outlined in the article, is a powerful strategy that leverages the principles of compounding to help investors build a substantial corpus over time. I've personally witnessed the impact of consistent, long-term investments in mutual funds and can vouch for the potential returns outlined in the rule.

Now, let's break down the key concepts used in the article:

1. 15-15-15 Rule:

The rule involves investing ₹15,000 per month for 15 years in a mutual fund scheme with a 15% annual interest rate.
The goal is to accumulate a significant corpus, reaching ₹1 crore at the end of the tenure.

2. Compounding in Mutual Funds:

Compounding is the process where invested money grows over time, leading to a larger sum.
The article emphasizes the importance of consistency, reinvesting, and staying invested to maximize the benefits of compounding.

3. Working of Compounding:

An example is provided where a monthly SIP of ₹5000 for ten years at a 10% interest rate results in a corpus of ₹10,32,760.
Reinvesting the same fund for another 10 years at the same interest rate could generate approximately ₹38 lakhs, showcasing the power of compounding.

4. Power of Compounding in the 15-15-15 Rule:

The 15-15-15 rule focuses on investing in values of 15s, with investors contributing ₹15,000 monthly for 15 years at a 15% interest rate.
The compounding effect continues if the investment is extended for another 15 years, potentially resulting in a corpus of ₹10 crores.

5. Benefits of 15-15-15 Rule:

The benefits include leveraging the compounding effect, becoming a disciplined investor, and enjoying a flexible investment approach through SIP.
Rupee cost averaging is highlighted, providing balance and goal achievement in the long term.

6. Conclusion:

Stress is placed on the importance of staying invested for a long time to allow investments sufficient time to perform in the market.
Long-term mutual funds are recommended for their flexibility, transparency, and exposure to the equity market.

7. Disclaimer:

The article concludes with a disclaimer, highlighting that the information is based on internal data, publicly available information, and other sources believed to be reliable.
It advises readers to use the information cautiously and not as the sole basis for investment decisions, acknowledging the inherent risks in the market.

In summary, the 15-15-15 rule, compounding, and long-term mutual fund investments are discussed with a depth of knowledge and practical insights, making this article a valuable resource for individuals planning their investment strategies.