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 modeling 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.
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:
This article shows how a single-income middle-aged couple with two small children reach their retirement and children’s goals.
This article shows how a double-income couple with a 2-year old reach their FIRE dream at the age of 50.
This article shows how a double-income couple with a newborn child can invest for their future goals of FIRE and real-estate investment.
This article shows how a young just-married couple can invest for future goals using the Arthgyaan goal-based investing tool.
Did you welcome a bundle of joy in your 40s? This article will discuss ways of planning the child’s (and your’s financial future)
This article shows how a very typical salaried couple with one child can invest for future goals using the Arthgyaan goal-based investing tool.
This article shows you that investing via SIP in a mutual fund does not create wealth.
Published: 12 February 2023
6 MIN READ
This article explains the concept of CoastFIRE and lets you calculate when you can achieve CoastFIRE.
Published: 19 February 2023
4 MIN READ
This article shows how to understand the impact on your portfolio if you stop investing for a few years between today and retirement.
Published: 24 April 2024
4 MIN READ
This article explains what happens if you withdraw from your EPF to buy a house and who should or shouldn’t withdraw from EPF for this reason.
Published: 21 April 2024
7 MIN READ
1. Email me with any questions.
2. Use our goal-based investing template to prepare a financial plan for yourself.Don't forget to share this article on WhatsApp or Twitter or post this to Facebook.
Discuss this post with us via Facebook or get regular bite-sized updates on Twitter.
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
