Know The 15*15*15 Rule In Mutual Funds

Updated on: Dec 30th, 2022 - 5:39:57 PM

5 min read

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If you are an investor who is looking to accumulate Rs 1 crore, then you can do so by following the 15*15*15 rule. We have covered the following in this article:

The 15*15*15 rule says that one can amass a crore by investing only Rs 15,000 a month for a duration of 15 years in a stock that offers 15% returns per annum. It is purely an effect of compounding. Before we proceed to understand 15*15*15 rule, let’s first understand compounding.

What is Compounding?

The term ‘compounding’ is extensively used in mutual funds. Compounding is a phenomenon which makes small amounts invested on a regular basis grow to a significant sum over time.

This is possible as the interest earned in the previous compounding period will, in turn, earn interest in the next compounding period. Therefore, compounding is the backbone of mutual fund investments and can take people from rags to riches over time. One can take maximum advantage of compounding by starting to invest in mutual funds at the earliest. This is the primary theory behind compounding.

Power of Compounding

Let us get to the power of compounding with an example. Consider Mr Ram began investing when he was 22 years old, and he stopped investing after eight years. His friend Mr Sham started investing at the age of 30 years and goes on to invest until he reaches the age of 60 years. Mr Ram, although he stops investing at the age of 30, he did not redeem his holdings. He stayed invested until 60 years of age. Let’s see how both Mr Ram and Mr Sham stack up at the age of 60:

ParameterMr RamMr Sham
Age when entered20 years30 years
Age when exited60 years60 years
Investment duration10 years30 years
Holding period40 years30 years
Amount investedRs 2,000 a monthRs 2,000 a month
Total amount investedRs 2,40,000Rs 7,20,000
Returns earned10% a year10% a year
Corpus accumulated at the time of redemptionRs 81,27,183Rs 45,20,796
Growth 33.9 times6.3 times 

You can notice in the table above that Mr Ram has made more money than Mr Sham despite investing lesser than him. This is because he had already accumulated some corpus in his mutual fund investment account by the time Mr Sham began investing. Moreover, he did not redeem his fund units, and he left them invested. These units kept on accumulating compounded interest which swelled up Mr Ram’s portfolio to a whopping 33.9 times his investment.

15*15*15 Rule

This rule is one of the most basic rules that help an investor become a crorepati. It says that if you invest Rs 15,000 a month for a period of 15 years in a stock that is capable of offering 15% interest on an annual basis, then you will amass an amount of Rs 1,00,27,601 at the end of 15 years. You invested only Rs 27 lakh while you earned Rs 73 lakh.

Furthermore, if you extend this for 15 more years, your corpus accumulated will be increasing exponentially. Now, 15*15*30 rule will help you accumulate a massive Rs 10,38,49,194 (more than Rs 10 crore). You would have invested a mere Rs 27 lakh and end up earning Rs 9.84 crore.

Key Takeaway

When it comes to mutual fund investments, you should not only invest money but also your time, because here time is also money! Long-term investment horizon can do wonders to your mutual fund portfolio and following the 15*15*15 rule will make you a crorepati.

Frequently Asked Questions (FAQs)

How to earn 1 crore from mutual funds?

If you invest 15000 per month in a mutual fund that earns 15% annually, then you'll have a corpus of over 1 crore in 15 years.

What is Compounding?

Compounding means an increase in the value of an investment due to the interest earned on the principal as well as the accumulated investment. Hence, it's effectively an interest on interest.

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