Mutual fund investment: The volatility of the stock market has caused many people to consider investing in mutual funds as a more stable option. Stories of funds producing significant returns of 10x or 20x over an extended period of time have captured the attention of potential investors. However, it is essential to remember that mutual fund investments come with their own set of risks associated with market fluctuations.
Despite the potential for high returns, there is always a possibility of losing money in the market. It is crucial for investors to do thorough research and consult with financial advisors before jumping into mutual fund investments to ensure they are making informed decisions. Overall, while the allure of high returns may be tempting, it is important to approach investing in mutual funds cautiously and with a well-thought-out plan.
15–15–30 rule
The 15x15x30 rule of mutual funds involves investing Rs 15,000 per month for a period of 30 years in a fund that offers a 15% annual return. As per experts, this can give the investor an opportunity to accumulate Rs 10 crore against 1 crore.
For those who are in their 20s/early 30s, they have a long working life before they retire. They can target accumulating Rs 10 crores by starting with a Rs 15,000/- SIP in an asset class which can give them 15% return. If you are someone who has the capacity to invest much higher you can use the above thumb rule to know the amount that you will be able to accumulate. So, if you can invest Rs 1.5 Lakh (10x of Rs 15K) as SIP, you will be able to generate Rs 100 Crores (10x of Rs 10 Crores) at 15% p.a. in 30 years. If your capacity is to invest Rs 60K (4x of ₹15K), you will be able to generate Rs 40 crore (4x of Rs 10 crores) and so on," said Jay Shah, Founder and CEO-Finwisor
15-15-15 Rule
The rule says to achieve the goal of earning Rs 1 crore, an investor should invest Rs 15,000 monthly through SIP for 15 years, considering a 15% annual return from an equity fund. Consistent adherence to this strategy can lead to significant wealth accumulation. This can be easily achieved if one is consistent in their SIP investment.
Investment for 15 years
Utilising the SIP calculator, an investment of Rs 15,000 monthly over a duration of 15 years results in a total capital outlay of Rs 27,00,000. Assuming an annual return of 15%, the projected long-term capital gains are estimated to be Rs 74,52,946. After 15 years, you will get a total of Rs 1,01,52,946.
The compounding effect
Compounding, when applied to mutual fund investments, describes the process by which small initial amounts can grow substantially over an extended period. Specifically, the returns generated in one compounding period subsequently generate additional returns in subsequent periods, effectively accelerating growth over time.
Essentially, compounding allows your initial investment to earn returns, which are then reinvested to generate even more returns in the future. By reinvesting earnings within the same investment timeframe, the compounding effect amplifies the value and profitability of your investment.
This concept forms the basis of many investment opportunities, making it essential to maximize gains by investing in mutual funds promptly and consistently. The idea of compounding highlights the importance of starting early and staying committed to long-term investment goals in order to see significant growth in wealth over time.
Points to note
Shah said investors should keep certain things in mind to build a robust corpse
> Discipline: Practically, this is where most people fall short. Investing consistently for 30 years requires you to maintain faith and keep investing even when markets are going through tough times.
> Asset class: The above thumb rule assumes a growth of 15% p.a. Selection of an asset class that can give you such returns is critical. Ideally one needs to invest in equities/equity MFs for the same.
> Returns: For generating higher returns, either put in the hard work to understand the investing game well or rely on experts who have been there done that.
> Risk: In trying to maximize your returns, be aware of your risk appetite. Only take risks that you can swallow if things go wrong.
Disclaimer: The views and investment tips by investment experts are their own and not that of Business Today. Readers are encouraged to consult a qualified financial advisor or a SEBI-registered investment advisor before making any investment decisions.
