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The myth of the 15*15*15 or crorepati rule for mutual funds in India

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.

The myth of the 15*15*15 or crorepati rule for mutual funds in India


Posted on 15 Feb 2023
Author: Sayan Sircar
5 mins read
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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.

The myth of the 15*15*15 or crorepati rule for mutual funds in India

Summary:
  • The 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.
  • Stock market returns are not predictable and stock markets do not behave like a fixed deposit (FD).
  • Only 24% of equity funds older than 15 years have reached a portfolio of ₹1 crore or above in the last 15 years after investing ₹15,000/month.
  • If you fall behind your target 15% at any point along the way, it becomes even more challenging to catch up, and wealth creation via SIP is not guaranteed.
  • Instead of a target return, investors should focus on managing risk and review goals regularly, increasing or decreasing investments as needed.
  • Investors should critically evaluate sales pitches based on target returns, as mutual fund sales personnel and fund managers cannot predict the future.


📚 Topics covered:

What is the 15 in 15 in 15 or crorepati rule in India?

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 do not behave like an FD

Stock market (Nifty 50) vs FD

Stock markets fluctuate with time and modeling it like an FD is risky. There is nothing called “average” return in a stock market.

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How many funds have better than 15 percent SIP returns?

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.

How many funds gave 15% SIP returns over 15 years

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.

What if we get lower than 15% returns?

Since stock market returns are not predictable, let us see what happens if we get less than 15% returns before 15 years are over.

How much returns do you need if you get less than perfect returns

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.

Related:
What returns should we expect from equity investing?

What should you do instead?

Understand that wealth creation via SIP is not guaranteed

Returns from a 10-year SIP

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

Instead of a target return look at managing risk

Review goals regularly

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

Critically evaluate a sales pitch

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:

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Next steps:

1. Email me with any questions.

2. Use our goal-based investing template to prepare a financial plan for yourself
OR
use this quick and fast online calculator to find out the SIP amount and asset allocation for your goals.

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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


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