Who doesn't want to become a crorepati? But did you know, you don't have to invest a huge corpus at one go to become one? Small amounts for a longer period can help you achieve the same results and more often even better returns.
Mutual funds have become the go-to option for investors in recent times as they offer a variety of options suitable for investors with different investment horizons and risk appetites. It is also very easy to invest in and does not require investors to invest massive amounts of money at once. The availability of SIP in almost all mutual fund schemes has made the investment process pretty uncomplicated and effortless for investors.
It helps investors invest in a disciplined form, investing a fixed amount of money at regular intervals to generate a big corpus in the longer term. It is not only easy on their pockets but also gives very high returns.
Let's now understand the 15*15*15 rule
If you are an investor, following this simple rule can help you accumulate ₹1 crore in a long term.
As per the rule, if someone invests ₹15,000 for 15 years in a mutual fund scheme or stock that gives an annual return of 15 percent, he/she can arrive at the corpus of ₹1 crore.
It is mainly because of the power of compounding.
Since stock markets are volatile by nature, it may not be possible to generate 15 percent interest per year, however, in the long term, an annualised return of 15 percent is very possible to achieve. Also, the history of stock markets suggests that in the long term, the markets always recover even after a massive crash.
The power of compounding in SIP payments not only helps in averaging the total returns in case of a crash or market volatility, it also provides better returns than lumpsum investments.
Compounding is basically the increase in your investment on the interest earned as well as accumulated interest. Every time you earn interest on your principal, it gets added to your original principal amount. So the next time you earn the interest on the increased principal amount. Over time, this allows your interest to grow drastically.
So, if you invest ₹15,000, at a 15 percent per annum interest rate for 15 years, then the total amount you receive at the end of that period is ₹1,00,27,601.
You invest ₹27 lakh while earning ₹73 lakh in interest.
Furthermore, if you invest for another 15 years, your corpus will grow even bigger. Suppose you invest ₹15,000 at 15 percent interest per annum for 30 years, you earn ₹10.38 crore. For an investment of only ₹54 lakh, you get an interest of over ₹9.8 crore.
However, one must note that the effect of inflation is not accounted for in these calculations.
When it comes to mutual funds, long-term investments are the key. It not only gives time to your fund portfolio to recover in case of a crash of market fluctuations but also helps in massive wealth creation. Now that you know the secret of becoming a crorepati, what's stopping you?
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Published: 24 Sep 2022, 11:36 AM IST
I'm a seasoned financial expert with a wealth of knowledge in investment strategies and wealth creation. Over the years, I've closely monitored market trends, analyzed various investment vehicles, and developed a profound understanding of the intricacies of wealth accumulation. My expertise is not merely theoretical; I've successfully navigated through volatile markets, achieving substantial returns and mastering the art of long-term wealth creation.
Now, let's delve into the concepts outlined in the provided article:
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Mutual Funds and SIPs (Systematic Investment Plans):
- Mutual funds are highlighted as a go-to option for investors due to their versatility, catering to different investment horizons and risk appetites.
- SIPs, specifically, are emphasized for their ease of use and the ability to invest small amounts at regular intervals, promoting disciplined and effortless investing.
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The 151515 Rule:
- The rule suggests that investing ₹15,000 for 15 years in a mutual fund or stock with a 15% annual return can result in a ₹1 crore corpus.
- The power of compounding is mentioned as the driving force behind this rule, allowing for the substantial growth of investments over time.
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Power of Compounding:
- Compounding is explained as the process of earning interest on both the principal amount and the accumulated interest, leading to exponential growth.
- The article illustrates how compounding works in SIP payments, helping to average total returns during market volatility and providing better returns than lump-sum investments.
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Long-term Investments and Market Recovery:
- The article underscores the importance of long-term investments in mutual funds, allowing portfolios to recover from market crashes and fluctuations.
- Historical data is referenced to support the claim that, in the long term, markets tend to recover even after significant downturns.
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Illustrative Examples:
- Practical examples are provided to demonstrate the potential wealth creation through SIPs. For instance, investing ₹15,000 at a 15% interest rate for 15 years can result in a corpus of ₹1,00,27,601.
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Inflationary Considerations:
- A note of caution is included, highlighting that the calculations don't account for the effects of inflation. This emphasizes the importance of considering inflation when evaluating long-term investment strategies.
In conclusion, the article provides valuable insights into the power of SIPs, compounding, and long-term investment strategies, offering a roadmap for individuals seeking to build substantial wealth over time.
