Learn about the 15*15*15 Rule for mutual funds and find out more about the magic of compounding.
Wealth creation is a marathon and not a sprint. The 15*15*15 rule shows how true this is. There are no shortcuts to financial freedom or a comfortable retirement. However, there are guidelines and rules that can help you create wealth for the future.
One of these useful mutual funds SIP related rules is the 15*15*15* rule. It can help you generate up to ₹1 Cr in 15 years with the magic of compounding. You may download the Cube Wealth app or speak to a Cube Wealth Coach for starting your Investment journey.
Before we get into what the 15*15*15* rule is, it would be useful to know how compounding works.
In investments, compounding means that interest is calculated on the principal amount and the interest already earned. Simply put, you’ll earn interest on interest.
This leads us to one of the most popular phrases in mutual fund and stock investments, ‘the magic of compounding’
The magic of compounding is not actually magic - it’s simple math. But the utility of compound interest is best represented through the value of our investments over time. Let’s take a look at an example to understand this.
The magic of compounding is clear from the above example. This is the main reason why investors tend to prefer stocks, mutual funds and other such assets for the long term.
The 15*15*15 rule implies that if you invest ₹15,000 via SIP per month in a fund that gives 15% returns for 15 years, you can generate ₹1 Cr.
Here is a breakdown of the 15*15*15* rule:
Ans. The 15*15*15 rule in mutual funds is a thumb rule that states that a Systematic Investment Plan (SIP) of Rs. 15,000 per month for 15 years can provide a net wealth of Rs. 1 crore. This is based on a 15% interest rate and a compounded annual growth rate (CAGR). This rule demonstrates the power of compounding and the advantages of SIP investing.
Ans. Compounding means that interest is calculated on the principal amount and the interest already earned. Simply put, you’ll earn interest on interest.
Ans. The amount you'll need to invest to become a millionaire depends on where you are in your life. You can afford to sock away less money when you're younger because you have more time to accumulate your wealth and you can tolerate more risk. If you put off saving until you're older, you'll have to put away more money every month.
Ans. You may use apps like Cube Wealth or speak to a Wealth Coach to make an Investment plan that aligns with your budget, goals & risk tolerance.
Ans. Saving money can be challenging especially when you’re just starting your journey. Things like building a budget, making clear goals, starting by little amount and gradually increasing, avoiding impulse spending can help you stay focused and build a habit of saving money. You may speak to a Cube Wealth Coach for individualised support.
Investing for the long term, in general, has several benefits. When you add the magic of compounding to the mix, it becomes even more beneficial.
The 15*15*15* rule is a useful guideline that can serve as a benchmark to evaluate your portfolio. However, a one size fits all approach may not work when it comes to mutual funds.
Download the Cube Wealth app today to learn more about picking the best mutual fund investments for the future.
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