The 15-15-15 rule of mutual funds: Joys of Compounding
“Compound interest is the 8 th wonder of the world. He who understands it earns it and he who doesn’t pays it.” – Albert Einstein
Power of Compounding
Albert Einstein rightly said that the world's 8th wonder is compound interest. Compounding is a very strong concept. This is because you still earn interest on the interest of your invested money. The investment value continues to grow at a geometric (always increasing) level than at an arithmetic (straight-line) rate. Over a period of time, the capital continues to accumulate. Compounding is also a phenomenon of a long-term existence. And in the long run, I mean 15-30 years. Investing early is as important as investing wisely. Just a small amount can quickly increase your earnings. Let's see how you can earn Rs 10 Cr from an Rs 15 K investment.
15*15*15 Rule
Rs 15,000 SIP will give you the return of Rs 1 Crore at maturity at an estimated 15 percent CAGR for 15 years. You can get Rs 1 Crore with just an investment of Rs 27 lakhs spread over fifteen years.
Power of Compounding
Albert Einstein rightly said that the world's 8th wonder is compound interest. Compounding is a very strong concept. This is because you still earn interest on the interest of your invested money. The investment value continues to grow at a geometric (always increasing) level than at an arithmetic (straight-line) rate. Over a period of time, the capital continues to accumulate. Compounding is also a phenomenon of a long-term existence. And in the long run, I mean 15-30 years. Investing early is as important as investing wisely. Just a small amount can quickly increase your earnings. Let's see how you can earn Rs 10 Cr from an Rs 15 K investment.
15*15*15 Rule
Rs 15,000 SIP will give you the return of Rs 1 Crore at maturity at an estimated 15 percent CAGR for 15 years. You can get Rs 1 Crore with just an investment of Rs 27 lakhs spread over fifteen years.
But, there is also the 15*15*30 rule which you should be aware of.
15*15*30 Rule
Rs 15,000 SIP can give you the return of Rs 10 Crore at maturity at an assumed CAGR of 15 percent for 30 years. You can get 10 times more returns by just increasing your tenure by 15 years. The amount of investment is Rs 54 lakhs, but by then the amount accumulated is Rs 10 Crore.
15*15*30 Rule
Rs 15,000 SIP can give you the return of Rs 10 Crore at maturity at an assumed CAGR of 15 percent for 30 years. You can get 10 times more returns by just increasing your tenure by 15 years. The amount of investment is Rs 54 lakhs, but by then the amount accumulated is Rs 10 Crore.
I am sure now that you would have believed why compounding is so powerful. However, please note that 15% CAGR means an average of 15% over a term, not 15% of an annual return. One can experience a 20% return one year and -5% the next year. The average will be 15% over the period of time. Equity funds have beaten inflation and all the other asset classes in the long term (10 – 15+ years).
To know more about Mutual Funds, you can visit our website http://www.jayantharde.com or contact our representative at +91 712 2282029
Benefits of SIP InvestmentI would therefore strongly advise investors to invest via SIP in mutual funds. Compounding is one of the major advantages of SIP investment. SIP not only gives the advantage of compounding. It has other benefits too.
Rupee-Cost Averaging
If a fixed amount is regularly invested in a different market cycle over a period of time, one can get more units if the price is low or less if the price is high. It reduces the long-term average investment cost.
Levels out market fluctuations
Since units of mutual funds are bought on a regular basis via SIP, short-term market movements are avoided. Often, one has to make sure they don't invest too frequently in a SIP way. For example, every week or fortnight. If you have a regular investment plan daily or fortnightly, they will look at your savings too often. Short-term ups and downs can influence their investment decisions, which a structured monthly investment plan may prevent.
Disciplined Investing
When spending a fixed amount out of regular savings, you are pushing yourself to get used to a pattern of fixed investment. This will support them for their long-term financial needs to create a corpus. Money not invested is often spent on consumption, undermining investors long-term goals.
Simple and easy to monitor
Investment tracking becomes easy and convenient with a regular monthly investment. Also, SIP investment just clicking a button has become much simpler.
Flexibility
Rupee-Cost Averaging
If a fixed amount is regularly invested in a different market cycle over a period of time, one can get more units if the price is low or less if the price is high. It reduces the long-term average investment cost.
Levels out market fluctuations
Since units of mutual funds are bought on a regular basis via SIP, short-term market movements are avoided. Often, one has to make sure they don't invest too frequently in a SIP way. For example, every week or fortnight. If you have a regular investment plan daily or fortnightly, they will look at your savings too often. Short-term ups and downs can influence their investment decisions, which a structured monthly investment plan may prevent.
Disciplined Investing
When spending a fixed amount out of regular savings, you are pushing yourself to get used to a pattern of fixed investment. This will support them for their long-term financial needs to create a corpus. Money not invested is often spent on consumption, undermining investors long-term goals.
Simple and easy to monitor
Investment tracking becomes easy and convenient with a regular monthly investment. Also, SIP investment just clicking a button has become much simpler.
Flexibility
At your convenience, a SIP can be stopped at any time. The SIP may be paused, or at any time during the tenure of the SIP, the SIP amount may be increased or decreased.
Long-term gains
SIP only returns for a long-term duration. The critical one is hanging on to an investment for
higher returns for at least 10 years. The key to success is patience. Live locked in higher returns for a long time.
Long-term gains
SIP only returns for a long-term duration. The critical one is hanging on to an investment for
higher returns for at least 10 years. The key to success is patience. Live locked in higher returns for a long time.
Guy Spier said, “Long-term compounding is an investor’s best friend, so why to get in its way”. So do not get in the way of your investments in short-term. Remember, compounding only works in the long term.
To know more about SIP investment, you can visit our website http://www.jayantharde.com or contact our representative at +91 712 2282029 or meet us at 51, Gurukripa, Old Sneha Nagar, Wardha Road, Nagpur – 440015.
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