Mutual Funds
This article debunks the myth of the 15 * 15 * 15 or crorepati rule for mutual funds in India, revealing that a common marketing tactic for selling mutual funds does not work in practice.
If you invest ₹15,000/month at a 15% return, then you will become a crorepati in 15 years
You can cross-check this claim using this formula in Excel or Google sheets:
=FV(15%/12,15 * 12,-15000,0,1) = 1 crore
If you ever come across this pitch for a mutual fund investment, please take it with a large pinch of salt. This article explains why.
Stock markets fluctuate with time and modelling it like an FD is risky. There is nothing called “average” return in a stock market.
As per Valueresearchonline data, out of 178 equity funds older than 15 years, only 43, i.e. 24% or 1 out of 4 funds, have given returns for SIP of more than 15%.
1/4 does not indicate good odds. Imagine crossing a road with a 1/4th chance of crossing safely. People will stop crossing streets. The same logic is applicable here.
Only 24% of the funds older than 15 years have reached a portfolio of ₹1 crore or above in the last 15 years after investing ₹15,000/month.
Our SIP calculator with Target Amount will show you how much you need to save per year to reach a crore based on various funds:
Required Monthly SIP (₹):
Total Investment (₹):
Target Value (₹):
Inflation-Adjusted Value (₹):
If you found this useful, check out the Arthgyaan step-up SIP calculator.Since stock market returns are not predictable, let us see what happens if we get less than 15% returns before 15 years are over.
As the table shows, in the case where 8 years is left out of 15, and the return to date has been 12%, the return needed to reach ₹1 crore in 8 years is an absurd 16.9%. Only 9% of the funds, out of 178, have come to this figure.
Essentially, if you fall behind your target 15% at any point along the way, it becomes even more challenging to catch up.
We calculated SIP return data for 10-year periods and saw that a ₹10,000/month SIP (₹12 lakhs investment) reached a figure between ₹15 to ₹28 lakhs. This conclusion is that the return is too unpredictable to be useful.
Read more: The lie of wealth-creation via SIP in mutual funds
You need to implement the following steps via an annual or market-movement triggered review process:
Read more: Why you should chase your target goal corpus instead of returns
No one can predict the future irrespective of their credentials, confidence or track record. This includes mutual fund sales personnel and fund managers. If you are being sold an investment based on returns, it will be on your head if you do not have enough money to be spent for your goal on the date you need to spend. Here are some worked-out examples with some typical goals and how to invest for them:
The 15*15*15 or crorepati rule says that if you invest ₹15,000/month at a 15% return, you will become a crorepati in 15 years. It is a common marketing tactic to push mutual funds in India.
No, the 15 in 15 in 15 or crorepati rule for mutual funds in India is not accurate. The stock market does not behave like a fixed deposit, and returns are not guaranteed.
According to Valueresearchonline data, out of 178 equity funds older than 15 years, only 43, i.e. 24% or 1 out of 4 funds, have given returns for SIP of more than 15%.
Instead of relying on the 15 in 15 in 15 or crorepati rule, you should understand that wealth creation via SIP is not guaranteed. It is important to manage risk and critically evaluate any sales pitches.
If you get lower than 15% returns, it becomes even more challenging to catch up to your target. It is important to have a plan for managing risk and adjusting your investments accordingly.
No, it is not possible to predict returns on mutual funds accurately. Even experts cannot predict the future of the stock market with certainty.
No, you should not rely solely on a mutual fund sales pitch for investment advice. It is important to critically evaluate any sales pitches and consider multiple sources of information before making investment decisions.
To manage your mutual fund investments, it is important to set clear goals and regularly review your progress. You may need to adjust your investments or rebalance your portfolio as needed to stay on track.
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More posts...Disclaimer: Content on this site is for educational purpose only and is not financial advice. Nothing on this site should be construed as an offer or recommendation to buy/sell any financial product or service. Please consult a registered investment advisor before making any investments.
This post titled The myth of the 15*15*15 or crorepati rule for mutual funds in India first appeared on 15 Feb 2023 at https://arthgyaan.com
