After we discussed about the rule of 72 , here we are with the next investment rule, the rule of 15*15*15. While the rule of 72 tells you how long it will take you to reach your target corpus, this rule is more of an elaboration of considering all factors into creating the desired wealth.

 

Concept behind: Compounding

We have heard many times people saying or magazines and articles quoting Albert Einstein for saying his famous quote in the power of compounding and metaphorically calling it the 8th wonder but what needs to be understood is the basis of this thought. Compounding is no magic. It is plain numbers with a very powerful mathematical formula backing it. The returns are geometrical in nature which in layman terms means on an increasing side and compared to simple interest which is an arithmetic progression, a linear one.

Compounding makes your money grow while you keep it invested over the long-term. The interest you gain on your investment gets added back or compounded back to the principal value and is re-invested in your choicest stocks. As the time passes by, your money keeps multiplying. But the formula needs time to showcase its power. The power of compounding is best effective in the long-term. Ideally a period of more than 10 years can fetch you the desired results so you need to be patient.

Coming back to the rule, let us look how it works;

 

The 15*15*15 Rule

First 15 goes to money- Rs. 15000

Second 15 goes to CAGR- 15%

Third 15 goes to tenure- 15 years

When combined: Rs. 15000 invested at the rate of 15% returns for 15 years can fetch you a corpus of Rs. 1,00,00,000 i.e. 1 Crore. Isn’t that amazing? Simple mathematics put at work to grow your money exponentially.

A SIP of Rs. 15000 per month for 15 years makes a total of Rs. 27,00,000 principal amount which grows into 1 Crore.

 

If this was not enough to amaze you, here is one more similar rule you can count on. The rule of 15*15*30, I know you would have understood the math by now but for my satisfaction I will comprehend the rule.

The 15*15*30 rule

First 15 goes to money- Rs. 15000

Second 15 goes to CAGR- 15%

The 30 goes to tenure- 30 years

The catch is here, this formula is your magic spell to gain a corpus of Rs. 10 Crore.

 

CAGR

CAGR stands for Compound Annual Growth Rate. CAGR is the rate of return used to calculate the growth of an investment from its beginning balance to ending balance with an assumption that all profits were invested back in the principal amount.

The formula for CAGR is:

CAGR= (EB 1/n / BB) – 1

Where EB: Ending Balance

BB: Beginning Balance

n: Number of years

 

CAGR key points:

  1. CAGR is one of the most accurate methods of calculating the returns for an instrument whose value falls and rises over the due course of time.
  2. It can be used to compare two investment instruments.
  3. It is exclusive of investment risk.

 

Benefits of investing through SIP

Investing through SIP has a lot of benefits which lump sum investment and savings do not offer. The major benefits of investing through SIP are:

  1. Rupee cost averaging
  2. Leveling out market volatility
  3. Maintains a disciplined investing
  4. Easy monitoring
  5. Provides flexibility
  6. Best suited for long-term gains
  7. Provides with compounded returns