wealth creation: ET Mutual Fund Explains: Looking to generate a target corpus of Rs 1 crore? Use Rule 15*15*15

When an investor chooses a mutual fund, they have a goal in their mind of how much return to expect, how much corpus will they generate after investing a particular amount on a regular interval.

Rule 15*15*15 helps a mutual fund investor become a crorepati even with a monthly investment of Rs 15,000 for a tenure of 15 years. This rule says that a mutual fund investor will earn 15% return if the investment is made for a longer period.

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What does compounding mean and how does it work?

Compounding means accumulating or growing wealth over a long period of time. In this one can invest a certain sum of money at regular intervals, which is usually not a big amount, and then in the end the investor can accumulate a large amount of money.

In investments, compounding means earning interest on interest, which means an interest earned on the investment will be added to the principal amount in the next year.

The monthly SIP made of Rs 15,000 with an expected return of 15% for 15 years, the calculation will be

Rule 15*15*15 helps in achieving long-term goals. By investing 15% of the income for 15 years in any mutual fund with an expected 15% annual return, an investor can accumulate a large corpus over a long period of time.

For example, if an investor earns Rs 50,000 per month and invests in a mutual fund with 15% expected return — Rs 7,500 for 15 years that offers an annual return of 15% will give Rs 57.65 lakh at the end of that specified period.

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This rule also helps in beating inflation. The inflation reduces the purchasing power of money and erodes savings. By investing in a mutual fund that gives 15% annual return, an investor can beat inflation and help in preserving the value of money.

For example, if the inflation rate is 6%, the value of Rs 1,000 today will be worth only Rs 174.11 after a period of 20 years. But if an investor invests in a mutual fund scheme that offers an annual return of 15%, the value of Rs 1,000 will be Rs 16,366 after 20 years.

If you are looking to calculate the target corpus using Rule 15*15*15, here is how you can calculate.

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