What is the 15-15-15 rule in Mutual Funds?

When we plan for our future, we all hope to reach a stage where we can enjoy financial freedom. And while it is not always the case, many of us, as investors, hope for fast returns from our investments- like a quick 100-metre dash. An investment needs time to give good returns. It is more like a long-distance marathon rather than a small spurt. To achieve financial freedom and a comfortable retirement, we need to understand the importance of investing in the right device and staying consistent.Any investment, with the correct strategy, can help with wealth creation. One such strategy is the 15*15*15 rule of investment in mutual funds . Using the power of compounding, this rule can help you earn up to ₹1 crore in returns in 15 years. Let us understand how the 15*15*15 rule works and how it can help you achieve your financial goals. Also read: How Early Should I Start Investing in Mutual Funds?

The 15*15*15 rule states that with the help of a Systematic Investment Plan , wherein you invest ₹15,000 per month at 15% for 15 years, you can earn a net amount of ₹1 crore in returns. Through compounding, you can earn ₹73 lakhs with an investment of ₹27 lakhs. And if you choose to extend the investment for an additional 15 years, you can earn up to ₹10 crores.Therefore, by making small periodic investments and staying invested over a period, compounding will help you turn your investment into a large corpus. Since any equity investment is subject to market fluctuations, it is important to note that this rule can help you estimate your returns and not guarantee them. The rule is based on an average interest rate of 15% over 15 years. Also read: Tips to Choose the Best SIP Plan

Compounding, the backbone of mutual fund investing, involves small investments made periodically over time. These investments can then turn into a substantial amount in the long run. Compounding works because the interest you earn in the previous period will earn you interest in the next compounding period, and so on. Therefore, you can make the most of this concept by investing at the earliest and reaping long-term benefits.Let us use an example to understand the power of compounding . Consider two people, A and B. A chose to invest ₹2000 per month from the age of 30, and B started investing ₹4000 from the age of 45. Both A and B invested till the age of 60. Though both invested around ₹ 7,20,000, they chose different time spans and monthly amounts. If the rate of return for both investors was 15%, let us see the total amount they earned.

Also read: What are Mutual Funds? How it Works, Meaning, Benefits & Types Link

It is important to note that any investment decision depends on the financial situation, risk tolerance, and goals of the investor. If you choose to add mutual funds to your investment profile, you can use the 15*15*15 rule as a guideline and evaluate your profile. Here are the benefits of using this strategy in your investments.• By providing you with a structured way to invest, this rule can prevent impulsive decisions.• The 15*15*15 rule ensures that you set specific financial goals by planning the amount and duration of your investment.• With a fixed investment amount, and an expected return rate, you have a clear picture of your potential earnings and risk levels. You can make informed decisions about the type of investment you want to make according to your risk tolerance.• The 15*15*15 rule helps you by encouraging financial discipline as you need to commit to a fixed periodic investment. And financial discipline goes a long way in ensuring sound investment decisions.• Since this rule is based on the long-term investment concept, it encourages you to look beyond short-term fluctuations in the market. This can help as it prevents you from making hasty decisions based on short-lived market trends.• Through compounding, this rule helps you achieve significant growth in your investments over the year.Here are a few tips to follow the 15*15*15 rule for maximum benefits:• Start investing as early as possible. The more you invest, the more time you give your money to multiply.• Choose to invest in several mutual funds to diversify and reduce risk.• Be consistent with your monthly investments regardless of the market trend.• Adjust your portfolio balance to maintain your required asset allocation.• Stay invested long-term without letting short-lived fluctuations induce panic selling. Also read: Mutual Funds for Short Term and Long-Term Financial Goals

The 15*15*15 rule is a crucial aspect of investing in mutual funds . This rule highlights the necessity for long-term investment so that your investments have sufficient time to perform and give you returns. Mutual funds are beneficial, but when you add the effect of compounding to them, the results are even more worthwhile. Compounding is a simple strategy with far-reaching advantages. This powerful concept allows your money to grow exponentially because after your capital earns interest for the first year, the accumulated interest keeps generating more interest in the subsequent years. So, the earlier you start investing, the more you can capitalise on the concept of compounding to accumulate wealth. Also read: 10 Golden Rules of Financial Planning For Beginners