
The volatile nature of the stock market has prompted many individuals to consider investing in mutual funds as a more stable alternative. The allure of stories about funds generating significant returns of 10x or 20x over an extended period has captured the attention of potential investors. However, it is important to remember that mutual fund investments come with their own set of risks associated with market fluctuations.
While there is potential for high returns, there is also a possibility of losing money in the market. To ensure informed decision-making, it is crucial for investors to conduct thorough research and consult with financial advisors before diving into mutual fund investments. While the temptation of high returns may be enticing, it is important to approach mutual fund investing cautiously and with a well-thought-out plan.
The 15x15x30 Rule of Mutual Funds
The 15x15x30 rule of mutual funds suggests investing Rs 15,000 per month for a period of 30 years in a fund that offers a 15% annual return. According to experts, this strategy can provide investors with an opportunity to accumulate Rs 10 crore against an initial investment of 1 crore.
For individuals in their 20s or early 30s, who have a long working life before retirement, targeting an accumulation of Rs 10 crores by starting with a Rs 15,000 SIP (Systematic Investment Plan) in an asset class that can provide a 15% return is achievable. Those with the capacity to invest a higher amount can use this rule to estimate the potential accumulation. For example, investing Rs 1.5 lakh (10x of Rs 15,000) as a SIP can generate Rs 100 crores (10x of Rs 10 crores) at a 15% annual return over 30 years. Similarly, investing Rs 60,000 (4x of Rs 15,000) can generate Rs 40 crores (4x of Rs 10 crores), and so on, as explained by Jay Shah, Founder and CEO of Finwisor.
The 15x15x30 Rule in Practice
The 15x15x30 rule suggests that to achieve a goal of earning Rs 1 crore, an investor should invest Rs 15,000 monthly through an SIP for 15 years, with a 15% annual return from an equity fund. Consistently adhering to this strategy can lead to significant wealth accumulation. Using the SIP calculator, an investment of Rs 15,000 monthly over 15 years results in a total capital outlay of Rs 27,00,000. Assuming a 15% annual return, the projected long-term capital gains are estimated to be Rs 74,52,946. After 15 years, the total amount accumulated would be Rs 1,01,52,946.
The Power of Compounding in Mutual Fund Investments
Compounding, when applied to mutual fund investments, refers to the process by which small initial amounts can grow substantially over an extended period. This occurs when returns generated in one compounding period are reinvested and subsequently generate additional returns in subsequent periods, effectively accelerating growth over time.
Essentially, compounding allows your initial investment to earn returns, which are then reinvested to generate even more returns in the future. By reinvesting earnings within the same investment timeframe, the compounding effect amplifies the value and profitability of your investment.
This concept forms the basis of many investment opportunities, highlighting the importance of maximizing gains by promptly and consistently investing in mutual funds. The idea of compounding underscores the significance of starting early and remaining committed to long-term investment goals to experience substantial growth in wealth over time.
Key Considerations for Building a Robust Investment Portfolio
Jay Shah provides some important considerations for building a robust investment portfolio:
- Investing consistently for 30 years requires maintaining faith and continuing to invest even during challenging market conditions.
- The above thumb rule assumes a growth rate of 15% per annum. Selecting an asset class that can provide such returns is crucial, ideally equities or equity mutual funds.
- To achieve higher returns, one can either invest time and effort in understanding the investing game or rely on experts who have expertise in the field.
- When aiming to maximize returns, it is important to be aware of your risk appetite and only take risks that you can handle if things go wrong.
Consult a Qualified Financial Advisor
The views and investment tips provided by investment experts are their own and not that of Business Today. Readers are encouraged to consult a qualified financial advisor or a SEBI-registered investment advisor before making any investment decisions.