What is 15*15*15 Rule In Mutual Funds?

The 15*15*15 Rule in mutual funds can spark anyone’s curiosity. This simple yet powerful guideline can transform how we approach investing. It emphasises the importance of making regular investments, staying invested long-term, and harnessing the magic of compounding. By following this rule, investors can potentially grow their wealth significantly. This blog will explore what this rule is, how compounding works, and why it’s advantageous for mutual fund investments. 

15*15*15 Rule Overview

The “151515 Rule” in mutual funds is a simple investment strategy designed to help build wealth over time. This rule suggests investing ₹15,000 every month for 15 years. The goal is to achieve an average annual return of 15%. By following this guideline, investors can take advantage of the power of compounding, which allows money to grow on itself.

Regular monthly investments help spread out the cost of buying mutual fund units, which can reduce the impact of market fluctuations. This means investors can benefit from buying more units when prices are low and fewer when prices are high. The rule highlights the importance of consistency and patience in investing. 

The Power of Compounding 

Compounding is an important concept in investing that helps money grow over time. It means earning interest not just on the original amount invested but also on the interest that accumulates. This creates a snowball effect, where the investment increases faster as time goes on.

For example, if a person invests ₹1,000 at an interest rate of 10% per year, they will earn ₹100 in the first year. In the second year, the investment grows to ₹1,100. The next year, the interest is calculated at ₹1,100, resulting in ₹110 earned. Over the years, the interest earned increases, leading to greater growth of the initial investment.

The longer the investment stays untouched, the more significant the effects of compounding become. This is why starting to invest early is so beneficial. Even small amounts can grow into large sums if given enough time to compound. Understanding the power of compounding can motivate individuals to start investing as soon as possible. It can lead to substantial financial gains, making it an essential part of any investment strategy.

How Does Compounding Work? 

Compounding works by allowing investments to grow over time through interest earned on both the original amount and the accumulated interest. This process can be explained in simple steps. First, an initial amount, known as the principal, is invested. Then, interest is calculated on this principal at a specific rate.

At the end of a certain period, such as a year, the interest earned is added to the principal. This new total becomes the new principal for the next period. For example, if ₹1,000 is invested at a 10% interest rate, the interest earned in the first year is ₹100. After one year, the total amount becomes ₹1,100. In the following year, interest is calculated on ₹1,100, resulting in ₹110 earned.

Over time, this cycle continues, causing the investment to grow at an increasing rate. The longer the money remains invested, the more pronounced the effect of compounding becomes. Even small, regular contributions can lead to significant growth when compounded. 

Example of Compounding 

Let’s look at a practical example to understand how the 15*15*15 rule can work in real life. Imagine investing ₹15,000 every month for 15 years. Assuming an average annual return of 15%, this investment can lead to impressive results.

At the end of 15 years, the total amount invested would be ₹27,00,000 (₹15,000 x 12 months x 15 years). However, due to the power of compounding, the final amount can be much higher.

Using a compound interest calculator, it’s possible to see that this investment could grow to approximately ₹1,18,75,000. This means the returns earned would be about ₹91,75,000 over the original investment amount.

Visualising these numbers can significantly impact how investment plans are created. Knowing that consistent monthly investments can yield such substantial returns helps reinforce the importance of sticking to the “151515 Rule.”

By making small, regular investments and allowing time for compounding, the potential for wealth creation becomes clear. This example shows that with patience and dedication, financial goals can be achieved, turning dreams into reality through smart investment strategies.

Benefits of 15*15*15 in Mutual Fund Investment

The “15*15*15 Rule” is an effective strategy for mutual fund investments that provides numerous advantages. By understanding these benefits, investors can make informed decisions that can lead to significant wealth accumulation over time. Here are the key benefits:

1. Regular Investments

• Investing ₹15,000 each month builds a strong financial foundation.
• Encourages a habit of saving and better financial discipline.

2. Significant Returns:

• An expected annual return of 15% can lead to substantial wealth growth.
• The power of compounding helps increase the overall investment value over time.

3. Long-Term Thinking:

• Investing for 5 years allows individuals to weather market fluctuations.
• Reduces the impact of short-term volatility, often resulting in better outcomes.

4. Simplicity

• The rule is easy to understand and follow, making it accessible to all investors.
• Provides a clear strategy for achieving financial goals like buying a home or saving for retirement.

5. Positive Mindset

• Promotes a healthy attitude towards investing and financial planning.
• Encourages patience and consistency, leading to better financial decisions in the long run.

Conclusion

In conclusion, the “15*15*15  Rule” in mutual funds offers a practical approach to building wealth over time. By investing ₹15,000 monthly for 15 years at a 15% return, individuals can harness the power of compounding to create a substantial corpus. This simple strategy emphasises the importance of consistency and long-term planning in achieving financial goals. It is beneficial for everyone to consider this rule in their investment journey. Starting to invest today can lead to significant growth in wealth over time, helping to secure a brighter financial future.