Constant stock market turbulence has propelled many risk-averse retail investors towards SIP (systematic investment plan) mutual fund investments. This is because a SIP eliminates the need for timing your market investment. With a SIP, you can invest in a mutual fund scheme periodically for a predefined small amount for the long term, regardless of the market movement. So, when the stock market is falling, you are allotted a higher number of quality mutual fund units; when the demand rises, a lower number of mutual fund units are assigned. This helps in averaging out your investment cost.
Discussed here is the 15X15X15 rule of mutual funds, which you can apply to your SIP investment to accumulate a corpus of Rs 1 crore over 15 years. Besides this, a SIP also allows you to build a substantial amount with small investments over the long term, owing to the power of compounding. However, before diving deep into the concept of the 15X15X15 rule, understand the role played by the compounding effect.
What is compounding in mutual fund investment?
Compounding is the phenomenon where a small investible amount grows into a considerable corpus if invested over a long-time span. In simpler terms, the returns earned on your investments are reinvested along with capital to generate higher returns. For instance, if you invest Rs 15,000 every month through a SIP in a mutual fund scheme of your preference for 15 years at an assumed annualized return rate of 15 percent per annum, then you would accumulate a corpus of Rs 1 crore by the end of the investment horizon owing to the benefit of compounding. You can easily compute the corpus generated through monthly SIP using an online SIP calculator.
What’s the 15X15X15 rule of a mutual fund?
The 15X15X15 rule of mutual funds is a fundamental rule to invest in a mutual fund through the SIP mode. As per this rule, you must invest Rs 15,000 monthly through a SIP in a mutual fund that can generate a return of 15 percent per annum to create a corpus of Rs 1 crore in 15 years. The instance mentioned above to show you the benefit of compounding is an example of the 15X15X15 rule.
This rule is effective only if you begin your investment early. Starting early with your mutual fund investment allows you to make the most out of the power of compounding.
“Money attracts money” is a saying that holds true in the case of the 15X15X15 rule, as it is backed by the compounding effect. Owing to the compounding impact of the SIP mode, your invested funds witness a multiplier effect where the returns generated on your initial capital are reinvested to yield higher returns over time.
However, remember that to make the most out of the compounding effect, you must ensure to remain invested for the long term. With long-term investment and a 15X15X15 approach, you can form a progressive portfolio through the SIP mode and become a millionaire.