As an investor, if you want to amass Rs. 1 crore soon, you might be able to accomplish it by adhering to the straightforward 15x15x15 Rule of Mutual Funds. This simple yet brilliant Mutual Fund Investing Principle can assist you in figuring out exactly how much money you need to set aside each month, how much time you need to devote to doing so, and what rate of growth and return you should anticipate and amass in order to reach your target of Rs. 1 crore.
Even though a return of up to 15% per year may not always be possible in the stock market, it may be possible over the next few years. However, keep in mind that consistency is essential in this situation. Stock exchange markets are thought to be inherently unstable and unpredictable, but over the long term, they eventually tend to rise. Continue reading to learn more about the Rule of 15 in Mutual Funds and how it exactly operates. This Rule and the power of compounding may be the secret to your success.
The Power Of Compounding
Compounding is a term that is commonly used while talking about mutual funds. Compounding is a process through which a little amount of money invested frequently grows into a greater amount over time. Therefore, "compounding" is essentially a pathway that will enable your money to generate additional income. The power of compounding kicks in once you reinvest inside your first investment window, increasing its value and profitability. This is possible because the whole return from the previous compounding window will receive interest throughout the following compounding window.
This fundamental idea—compounding—is the basis of all investment opportunities, therefore, it may be maximized by making mutual fund investments as fast, effectively, and continually as you can.
How Does Compounding Work?
Let us understand how Compounding works with the help of an example:
Consider that X and Y are seeking effective investment possibilities in the year 2002. In contrast to "X," who has amassed the necessary financial knowledge and has chosen to invest his savings in Equity Mutual Funds that pay a return based on the Sensex, "Y" has little knowledge of Compounding, Investments, and Stocks. Hence, he decides to play it safe and invests in a policy that pays a fixed interest rate of 7 per cent.
In the same year (2002), the Sensex was somewhere between 3900 and 4000 points, and while 'X' was not given any assurances regarding the percentage of return he would earn in the future, he was aware that, over time, the return on his mutual funds would outpace that of fixed deposits. As a result, both 'X' and 'Y' began investing Rs. 10,000 per month in each of their individual schemes. Additionally, the market declined in 2003, which also decreased the value of "X's" assets; yet, "X" is still investing through his SIP (Systematic Investment Plan).
'X' has put in a total of Rs. 2,40,000 over the past two years, but his account is still in the red, whereas 'Y's' investment has grown, and his portfolio is now worth Rs. 2,56,800. The market recovers slightly and increases by 3.52 per cent in the following year (2004), and 'x' invests Rs. 1,20,000 in accordance with his monthly SIP plan of Rs. 10,000. As a result, the value of 'X's' investment drops to Rs. 3,28,287, showing that his portfolio is still losing money, while 'Y's' investment rises to Rs. 4,04,176. However, 'X' is a wise investor, and he continues.
It is crucial to keep in mind that there is a lot of money in nature. Through its offspring, money may produce even more money. As a result, compounding is a captivating yet straightforward idea with tremendous power. People who do it well might not have to worry about retirement or other situations where their age may not be an advantage.
When money is compounded, interest is earned on the initial capital for the first year, and as interest is accrued, further interest is earned on the money in successive years. Finally, it's up to you to choose whether you want to invest wisely like "X" or play it safe like "Y," but in any case, happy investing, everyone! Learn more about Rule of 72 online only at Complete Circle Capital Private Limited.
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