What is the 15*15*15 Rule of Mutual Fund Investing?

Investing is known around the world as a difficult venture, but if done correctly, it can lead to multifold capital growth. An example of a trick to achieve this is the “15*15*15 rule of mutual fund”. Today, we’ll explain this trick in detail. 

What is the 15*15*15 Rule in Mutual Funds?

This principle of mutual funds can help you achieve your dream if you save a particular amount over time. According to this rule, if you invest 15000 per month for a period of 15 years and your investment fetches a return of 15%, you will accumulate 1.01 crores, whereas your total investment will be only 27 lakhs.

Power of Compounding

Compounding is essentially the exponential growth of your investment over a long period. This occurs when the profits earned on investments are reinvested, producing further profits. 

Let’s understand the magic of compounding through an example-

Assume that you have invested INR 1,00,000 in mutual fund schemes. You make 12,000 on it in the first year, assuming a return of 12%. Hence, the corpus at the end of the first year becomes INR 1,12,000 instead of INR 1,00,000. Furthermore, assuming a return of 12% in the 2nd year, the corpus would also become INR 1,25,440, earning a return of INR 13,440. 

You can now understand that even earning a consistent return every year would lead to higher growth in investment due to the concept of compound interest.

Components of the 15*15*15 Rule in Mutual Funds

There are 3 components of the 15*15*15 rules in mutual funds.

1. Period – This rule’s primary element is the investment horizon, often known as the time horizon. Since compounding has long-term benefits, it is appropriate for long-term investors.
2. Return—The 15% annualized return projected under this approach is typically offered in the equity asset class. Over an extended period, several mutual funds have reported similar results.
3. Investment – Since consistency in investment is a key component of this guideline, the investor must consistently invest 15,000 INR per month without being concerned about market volatility. 

Benefits of the 15*15*15 Rule in Mutual Funds

The major advantages of the 15*15*15 rule are as follows-

• This investment principle encourages you to optimize the benefits of compounding by emphasizing long-term investing. 
• The systematic approach to investing aids in the formation of a consistent saving habit in the investor. 
• Mutual funds are an inexpensive and easily evaluable asset that is accessible to anyone. Thus, allowing high liquidity. 

Limitation of the 15*15*15 Rule in Mutual Funds

The limitations of the 15*15*15 rule are mentioned below-

• Higher Returns – The 15% annualized return is regarded as extremely optimistic, and it is challenging for funds to regularly generate this return over an extended period of time. 
• Economic Downturn – The returns could decrease if the economy is expanding more slowly or if there are significant market crashes. 
• Investment – This investment principle assumes that the investor can make consistent investments throughout a 15-year period. However, there are a number of financial circumstances, such as unemployment or unexpected medical expenses, that may prevent an investor from making these kinds of investments. 

Important Points to Remember for the 15*15*15 Rule

An investor should take into account a number of factors before following the mutual fund 15:15:15 guideline. 

• To invest in mutual funds and build a corpus over an extended period of time, one must be aware of their level of risk tolerance. 
• It is necessary for an investor to confirm that they have the financial means to invest INR 15,000 each month for a duration of 15 years. 
• When you begin investing, select the best strategy allocation and periodically assess your portfolio to see how well it is going. 

Conclusion

Compounding is beneficial if you keep your investment for a long time. Mutual funds have several advantages, including returns that beat inflation and tax advantages, but the compounding effect is much more valuable. The sooner you begin investing and the longer you stay involved, the better the return. The mutual fund industry’s 15*15*15 rule operates in this manner. However, you should assess your risk tolerance by speaking with an investment counselor prior to making any investments. 

Frequently Asked Questions (FAQs)