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.
Before we get into what the 15*15*15* rule is, it would be useful to know how compounding works.
What Is Compounding?
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’
What Is 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.
What Is The 15*15*15 Rule?
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:
- Amount invested over 15 years @ ₹15,000 per month: ₹27,00,000
- Returns generated @ 15% compounded over 15 years: ₹74,53,000
- Total gains using the 15*15*15* rule: ₹1,01,53,000 Crore
You can see how a SIP would work for you using our SIP Calculator.
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.
Speak to a wealth coach or download the Cube Wealth app today to learn more about picking the best mutual fund investments for the future.