15*15*15 Rule - An approach to become Millionaire !!

We hear a lot from people saying, "I want to retire early"

Do we think this is possible? and the answer is yes. The goal can be achieved through the power of compounding, where investors need to invest money wisely through mutual or index funds, and that too on a long-term basis in equity funds as an option. Compounding your invested money is the only option available to beat the time value of money or inflation because it fundamentally increases the principal amount invested every year. The compound interest can be used by investors to plan their final goals and meet future unexpected expenses.

An early start, where the investor starts investing, would have higher compounding effects and make wealth building easier. In compounding interest rate methodology, investors can earn interest on interest, which means that if an individual is investing Rs 100 with a 10% interest rate, the total wealth will be Rs 110 next year, and whatever investments are made for the future year plus the last year's invested amount plus interest will be considered for calculating interest in the upcoming years.

Let's understand investment return with a fixed rate of return vs. a compounding rate of return for 10 years as a hypothetical example. An investor invested Rs 5,00,000 for a tenure of 10 years, expecting a 10% return.

Based on the below calculation at the fixed rate of interest methodology, an investor earns Rs 5,00,000 as interest after 10 years, and the take-home total amount will be Rs 10,00,000 (Rs 5,00,000 invested + Rs 5,00,000 interest earned). However, in the compounding rate of interest return scenario, an investor is getting Rs 7,96,871 as interest, which is Rs 2,96,000 more compared to the fixed rate of interest rate return.

Interest Earned Basis Fixed vs Compounding Rate

As smart investors, we opt for compounding as an investment option and also think about the return percentage if the total interest rate is more than 20% or more. There is risk involved as the amount is getting invested in equity, but if the purpose of the investment is long-term, then there is nothing better to beat the inflation and time value of money for sure.

If an investor reads the market trend carefully, it always goes up in the long run unless there is a world war or a natural disaster. Taking about the Indian share market trend in May-June 2020, when COVID Impact was at its peak with negative emotions all around the world, the share market crashed to 29,000 points, but within an year and a half it reached an all-time high, crossing 60,000 points.

What is the importance of 15*15*15 rule and how one can become millionaire in 15 years ?

15*15*15 - Monthly amount of saving * Duration * Interest Rate, This is one of the best investment rules that needs to be followed if you are really looking for a good rate of return in the long run, and as soon as you start investing for the long term, retirement will be possible. One should invest wisely and opt for the best mutual funds or index funds available in the market today. Below is the real-time mutual fund example, which will show you the rate of return based on the 15*15*15 investment rule.

15*15*15 Rule Return %

In the above example, an investor invested Rs 15,000 for 15 years with the expectation of getting a 15% rate of return. Based on the basic compound interest rate of return methodology, by investing Rs 27,00,000 in 15 years with a 15% rate of return, the investor will be getting approx. Rs 1,01,52,946, which is equivalent to Rs 10 million. Now think about the return amount if the invested amount is more, the tenure is 20 years, or the rate of interest is above 15%. The answer is: it's the power of compounding that makes the difference and helps investors build good wealth.

 

If the same investor applies the 15*15*20 rule, where 20 is the tenure that got increased to five more years, then look at the change in the return amount compared to 15 years of investment return percentage. That's the only reason its suggested to start investing as early as possible.

15*15*20 Rule - Investment period increase

So by increasing the investment term to another 5 years, which is from 15 to 20 years, the rate of return or the total value of the investment becomes approx. 20 million, or Rs 2,27,39,325 crore, which is just double of the total value that one is receiving by investing for 15 years. If the interest rate is higher, considering the share market will be on another level after 15 years or so, then the return percentage will undeniably meet the financial goals, and the future will be secured post-retirement for sure 😀

Biggest Advantage of Power of Compounding 

Benefits of Mutual Fund - Compounding Return