Staying invested in mutual funds for 15 years might seem like a long time. But once you understand the numbers, it is easier to stay committed. The 15-15-15 rule, while not a guaranteed formula, can offer a simple way to grasp the potential of a Systematic Investment Plan (SIP). What does it involve, and how can it work for you? Let’s find out.
Understanding the 15-15-15 SIP rule
The 15-15-15 rule is based on the power of compounding. It suggests that if you invest Rs 15,000 every month in a mutual fund through an SIP with an expected 15% annual return for 15 years, you could potentially grow your investment to Rs 92.45 lakh. Over this period, the total amount invested would be Rs 27 lakh, while the returns could add up to approximately Rs 65.45 lakh.
This growth can happen because of compounding, where your returns will be reinvested in the fund to generate even more returns. However, to see such growth, you must stay consistent with your investments and give them ample time to grow.
It is important to note that the 15-15-15 rule of SIP is not a guaranteed strategy. It only provides an estimate of how much your investment of Rs 15,000 per month could grow if you consistently earn a 15% return over the course of 15 years. Your actual returns can fluctuate due to market conditions.
Benefits of following the 15-15-15 rule
Here are some advantages of following the 15-15-15 rule:
- Encourages you to be consistent
The 15-15-15 SIP rule is built on discipline. Staying invested for 15 years without interruptions allows your money to grow and lets compounding work to its full potential.
- Allows you to benefit from rupee cost averaging
Investing Rs 15,000 every month through SIPs helps balance your overall investment costs. When markets rise, you get fewer units, and when they dip, you accumulate more units – all with the same investment amount of Rs 15,000 per month. This averaging helps reduce the impact of market volatility and balances out the cost of investment.
- Makes it easier to build a nest egg through small investments
Breaking down your investments into smaller but regular contributions makes wealth-building easier. Investing Rs 15,000 per month is a manageable amount, which has the potential to grow over the years.
How can you use the 15-15-15 rule effectively?
Here are three things you can do to use the 15-15-15 rule properly:
- Choose the right mutual funds
Since the 15-15-15 rule relies on achieving a 15% annual return, selecting the right mutual funds is crucial. Debt funds typically offer lower returns in comparison to equity funds, which have the potential to deliver higher growth over the long term.
There are no guarantees, but a well-chosen fund can increase the likelihood of meeting your investment goals. You can improve your chances by considering factors like past performance, portfolio composition, fund type, and the fund manager’s track record when selecting mutual funds.
- Avoid withdrawing your money prematurely
It is important to let your investment grow without interruptions. The 15-15-15 approach does not guarantee a high return, but it may yield positive results when you stay patient and maintain a long-term perspective. Withdrawing your funds too soon can reduce the overall corpus and impact your final returns. Stay committed and resist the urge to withdraw money for your short-term needs.
- Invest consistently
While SIPs are automated, you must ensure you have sufficient balance in your account so that the investment is made without interruptions.
Is the 15-15-15 rule right for you?
The 15-15-15 SIP rule strategy may not be for everyone, as it requires a long investment horizon. The strategy can work effectively if you can stay invested for at least 15 years without any premature withdrawals or missed investments. It may likely not work if you have short-term goals and need funds sooner.
Additionally, the rule assumes a 15% return per annum. Achieving this level of growth typically requires investing in equity mutual funds, which come with market volatility and higher risk. If you have a high risk appetite, this approach could work for you. However, if you prefer low-risk investments like debt funds, achieving the required returns may be challenging.
Conclusion
The 15-15-15 rule can offer a simple and structured approach to long-term wealth creation. It promotes consistency and discipline, making it easier to achieve your financial goals. However, it does not guarantee a specific corpus at the end of 15 years. It is important to understand that market conditions and fund performance can impact your returns. Therefore, before following this strategy, remember to consider your risk appetite and investment goals. If you are unsure whether the rule aligns with your financial plan, consulting a financial advisor can help you make an informed decision.
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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
