Mutual fund investors follow different investment strategies to maximise the growth and earning potential of these market-linked investments. The 15-15-30 rule is one such investment rule. The 15x15x30 rule in mutual funds states that if you make SIP investments of Rs. 15,000 every month in assets growing at an assumed CAGR of 15% for the next 30 years, you can accumulate a sizable corpus of Rs.10 crores. In this article, we explain what is the 15-15-30 rule in mutual funds, how this rule is applied, and what factors to consider when adopting this investment approach.
What is the 15-15-30 rule in mutual funds?
The 15x15x30 rule in mutual funds is essentially a money management and investment strategy with a long-term approach. The rule outlines investing Rs. 15,000 of your monthly income in mutual fund investments with a 15% annual return for a long tenure of 30 years. According to financial experts, adapting the 15-15-30 strategy can help investors accumulate a corpus of Rs. 10 crore against an initial investment of Rs. 54 lakh.
Understanding 15-15-30 rule in mutual funds in detail
Investing in mutual funds using the 15x15x30 rule helps offer investors a clear strategy for income management and investment. Let’s understand the what is the 15-15-30 rule in detail below:
1. Contributing Rs. 15,000 to MF investments
The first number in the 15x15x30 rule states that you need to dedicate Rs. 15,000 from your monthly income for MF investments. To do so, you need to start a monthly SIP of Rs. 15,000.
2. Picking assets that offer 15% return
The next ‘15’ in the rule refers to the rate of return on the investment. According to the 15-15-30 rule, the expected rate of return on your investment should be 15%. Therefore, you must invest in equity-focused mutual funds that offer a 15% rate of return.
3. Investing for a tenure of 30 years
Lastly, the investment tenure outlined in the rule is 30 years. In other words, you need to invest Rs. 15,000 every month for the next 30 years.
Real-life example of 15-15-30 rule in mutual funds
Let’s take a real-world example to understand the 15x15x30 rule in mutual funds. Let’s say you are a 27-year-old investor looking to get a jump-start on retirement planning. You wish to retire by 60 and have a retirement corpus of Rs. 10 crore to fall back on. To do so, you decide to start investing in mutual funds using the 15-15-30 rule. According to the 15x15x30 rule in mutual funds, you need to start a monthly SIP of Rs. 15,000, investing the sum into equity funds that offer an annual return of 15%.
Using an SIP mutual fund calculator, your total investment after 30 years will be Rs. 54,00,000. Your total projected corpus after 30 years will be equal to Rs. 10,51,47,309, assuming an annual return of 15% throughout the investment duration.
How to apply the 15-15-30 rule in mutual funds?
While the meaning of the 15x15x30 rule in mutual fund schemes is now clear, it is equally important to understand how this rule helps you build a sizable corpus. The 15x15x30 rule is based on the principle of compounding. Compounding is a process whereby you earn returns on your original principal as well as the interest you have already accumulated.
Additionally, the earnings of an asset get reinvested to generate additional gains over time. Essentially, this helps you earn returns on the already accumulated returns. This accelerates the growth of your corpus, resulting in exponential returns over the long run.
Let’s take an example to see how this works in the context of mutual funds. Suppose you invest Rs. 15,000 every month and generate 15% returns on your investment. At the end of the 15 years, you would have invested Rs. 27 lakh, and your total corpus will be worth Rs. 1.01 crores. If you remain invested for another 15 years, your corpus will grow to Rs. 10.51 crores.
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Factors to be considered while applying the 15-15-30 rule in mutual funds
The 15x15x30 rule in mutual funds can be a tempting option for beginners who need additional guidance to start investing. However, before you adopt the 15-15-30 rule, remember to consider the following factors:
1. Investment mix and diversification
Mutual funds invest in different asset classes like stocks, bonds, ETFs, gold, etc. For the 15x15x30 rule in mutual funds to work, you have to pick an asset class that delivers a 15% annual rate of return. In other words, equity mutual funds. Therefore, adopting the 15-15-30 rule may mean curating an equity-focused portfolio and missing out on the benefits of diversification, especially if you have limited funds to invest every month.
2. Long-term goals and investment planning
The 15x15x30 rule in mutual funds is best suited for long-term goals like retirement rather than short-term objectives. This rule postulates a prolonged 30-year investment window. Since the investment tenure is long, you can take greater risks as markets historically perform better over the long run. In other words, this rule may not be suited for short-term goals that you need to achieve within the next 3-5 years, like buying a home or planning a vacation.
Therefore, if you do adopt the 15x15x30 rule in mutual fund investments, make sure your investments are thoroughly planned. Additionally, ensure you have the discipline to consistently invest for 30 years, even when markets go through short-term fluctuations.
3. Risk management and portfolio protection
The 15x15x30 rule in mutual funds is all about maximising returns on your investment. To invest according to this rule, you will have to build a robust portfolio of equity investments. Equities carry a higher risk-to-reward ratio, meaning they are highly volatile. Increasing the equity exposure of your portfolio can be a source of concern, especially if you are a risk-averse investor.
However, you can protect your portfolio from heightened risks by diversifying your investments. Diversification helps spread the risk across different asset classes, thereby reducing the impact of one asset class’s poor performance on your overall portfolio value. Remember, you should only take risks you can tolerate and not go overboard with the risk exposure of your portfolio.
Conclusion
The 15-15-30 rule in mutual funds offers a systematic approach to investment and financial planning. It is apt for investors looking to build a sizable wealth corpus with regular and consistent investments for long-term goals that are decades away. However, given the 15% return requirement and long 30-year investment duration, the 15-15-30 rule may not be ideal for all investors, especially small investors who are averse to risk and do not have such a long investment horizon.
Whether you follow the 15-15-30 rule or not, you can still invest in mutual funds and build a wealth corpus by leveraging the power of compounding. To do so, you rely on the smart and intuitive Bajaj Finserv Mutual Fund Platform. This comprehensive platform lets you compare 1000+ mutual funds, estimate returns, and start SIP investments with just a few easy clicks. In other words, you can start your investment journey with a hassle-free partner!
