Mutual funds are among the most sought after investment avenues lately. It is because all mutual fund plans are managed by a finance professional called the fund manager who has an excellent track record of managing wealth. You don’t need to know how the markets work or have enough time to manage your investment. The fund manager would take care of everything, and you only have to invest.
Professional fund management and no requirement to manage the investments on your own have made mutual funds suitable for any individual to invest. The rule of 15*15*15 has made mutual funds even more attractive for investors. Following this rule is the simplest and easiest way to raise your first crore of rupees.
The rule of 15*15*15 says that on investing Rs 15,000 through a month SIP into a mutual fund plan which offers annualised returns at 15% for 15 years, your investment account would read Rs 1 crore. Here, time is key and you should not skip your SIP instalment. If you do, you will delay accumulating Rs 1 crore.
How does it work?
Well, mutual funds are powered by compounded returns, which is nothing but the return on returns. The power of compounding is capable of growing your small investments into a large sum when your investment horizon is longer. The following table shows what compounded returns are capable of:
| Duration | Your Investment | Worth of Your Investment | Difference |
| 1 year | Rs 1,80,000 | Rs 1,92,905 | Rs 12,905 |
| 3 years | Rs 5,40,000 | Rs 6,76,733 | Rs 1,76,733 |
| 5 years | Rs 9,00,000 | Rs 13,28,618 | Rs 4,28,618 |
| 8 years | Rs 14,40,000 | Rs 27,54,616 | Rs 13,14,616 |
| 10 years | Rs 18,00,000 | Rs 41,28,256 | Rs 23,28,256 |
| 13 years | Rs 23,40,000 | Rs 71,33,093 | Rs 47,93,093 |
| 15 years | Rs 27,00,000 | Rs 1,00,27,601 | Rs 73,27,601 |
Note: The above calculations are made considering the annual rate of return is 15%.
However, the challenge lies in identifying mutual fund plans that have the potential to provide 15% annualised returns. Even though all the fund plans are managed by a fund manager who is backed by a team of market researchers and analysts, not every fund provides you 15% annualised returns.
This is because only a few mutual fund plans have the mandate to allow the fund manager to invest in securities that may provide annualised returns of 15%. Liquid and overnight funds do not have this potential as the underlying securities mature within a short period of time. In that case, which are the mutual funds that can provide 15% annualised returns? Here’s the answer:
1) Index funds
These are a class of equity funds that track and emulate the performance of a popular stock market index such as BSE Sensex and NSE Nifty 50. The Indian benchmark indices have performed exceptionally ever since their inception. In fact, the value of BSE Sensex has tripled over the last 11 years. Therefore, investing in an index fund is a great option. Furthermore, the underlying stocks of an index fund are large-cap or bluechip. Which means, your investment grows as the market leaders grow.
2) Mid and large-cap funds
Mid and large-cap funds are a type of equity funds whose asset allocation is made mostly towards the mid and large-cap stocks. These funds are expected to do well over a period of five years and longer. The growth potential of mid-cap stocks powers the gains in these funds while the stability of large-cap funds provides the much-needed balance to the portfolio.
3) Sector funds
Sector funds are a class of equity funds whose asset allocation is made towards one particular sector such as banking, technology and energy. You have to identify those sectors that have a high growth potential in future and seek to invest in them. For instance, the investors who invested in IT sector funds in the early 2010s would now be enjoying high gains as the NSE Nifty IT index has nearly tripled its value since 2010. It entered the year 2010 at around 5,250. Likewise, there are many other sectors that have performed well, and you need to identify them.
Conclusion
Following the rule of 15*15*15 is the easiest and simplest way to amass Rs 1 crore in your investment account. Apart from realising Rs 1 crore in the form of long-term capital gains, you will also be getting dividends whenever declared by the companies. It is advisable that you choose the ‘growth option’. Choosing this option would enable the reinvestment of your dividends back into the fund, which helps you accumulate Rs 1 crore faster.
Here, you have to be relentless in your investment and patience is the key. Apart from investing in index funds, Mid and large-cap funds, sector funds, you may also consider mutual funds with international exposure, value funds and small-cap funds. However, the risk levels of these funds are on the higher side, which shouldn’t be a problem when your investment horizon is longer.
For any clarifications/feedback on the topic, please contact the writer at vineeth.nc@cleartax.in
Engineer by qualification, financial writer by choice. I am always open to learning new things.
