15x15x15 rule: Mutual Funds have become a preferred option by many investors due to the rise and fall prevalent in the stock market. There are numerous rules for investing in mutual funds, especially for beginners to get a basic idea of how to invest. One such infamous rule is 15x15x15, according to which an investor can become a crorepati in just 15 years.
According to this rule, an investor has to invest Rs. 15,000 per month in a mutual fund for 15 years that is expected to generate returns at the rate of 15 per cent. As per compound interest calculations, the amount the investor will receive after 15 years will be Rs. 1 crore.
But the question is, how relevant is the rule today?
Some experts say that it is possible to get 15 per cent returns after 15 years depending on the type of Mutual Fund, “The 15-year return of the mutual fund will be about 15 per cent depending on small cap, mid cap or large cap type of fund. It is possible especially when an investor is investing for 15 to 20 years,” said Hemant Rustagi, CEO, Wiseinvest Pvt Ltd.
However, Hemant said that getting a 15 per cent return can become challenging if there is any uncertainty. “The problem with the rule is it could sometimes give investors a false hope, but the investor will not be able to achieve the investment goal if there is any sort of uncertainty. And then there will be a gap between what investor intended to achieve and the actual result. Thus, it is advisable to be a little conservative in terms of assumptions.”
He also said that If the time horizon is above 10 years and one is investing in equity or equity-related funds it is safer to assume 12 per cent than 15 per cent.
Another expert, Shweta Jain, Founder, Investography Pvt Ltd said, “This rule is quite relevant in India especially as this is the formula to becoming a crorepati. Invest 15000 per month for 15 years and earn 15 per cent to reach that elusive number. But investors need to be mindful of the fact that markets are volatile so they may see years of low or negative returns. The key is to be disciplined and focused on the goal and stay committed. Long term in equity mutual funds is the key to success. Also, going forward markets may not give a 15 per cent return, but for now, to start, this seems likely a great place.”
Some experts have also said that 15 per cent returns in mutual funds may be an outdated concept due to the volatility in the market.
“In real terms, most of the investors are happy if they get 12 per cent returns in the long run, as there is no such avenue to get such 12 per cent returns. That is, after considering diversification offered by mutual funds, which minimises the risk of investing in equity. To be very frank, promoting the 15x15x15 rule to investors to lure them towards Mutual Funds can be overpromising and under-delivering most of the time,” said Nirmal Rewaria, Personal Finance Expert.
Mehul Ashar, CEO, Sky Financial says this rule is not valid, “15x15x15 is no longer valid as there are less chances of getting 15 per cent average returns over the period of so many years. This is because while building a portfolio investor will have to invest 50-60 per cent into a large cap, and if they have a large cap portfolio it won’t give more than 12 per cent return.”
Mehul further suggested following the 10x20x12 rule instead, “Investing Rs 10,000 every month for a period of 20 years with an expectation of 12 per cent average return is a more reliable calculation as the average period of time is increased, the investment amount is reduced and calculation is at 12 per cent average returns which more likely possibility of achieving the target.”
