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Business News/ Money / Personal Finance/  How to build a corpus of Rs 1 crore in equities? The 10*20*12 thumb rule can lead the way

How to build a corpus of Rs 1 crore in equities? The 10*20*12 thumb rule can lead the way

The 15*15*15 rule has now given way to the 10*20*12 rule given the constant market volatility due to unforeseen factors.

Give your money enough time to grow (Image by Nattanan Kanchanaprat from Pixabay)Premium
Give your money enough time to grow (Image by Nattanan Kanchanaprat from Pixabay)

Many investors looking to create wealth from stock movements put their money in mutual funds, though the choice of funds depends on one’s financial goals. There are numerous rules and factors surrounding mutual fund investments, thus, lending new investors the necessary know-how of how to invest. 

Many people talk of either lump sum investments or putting money through systematic investment plans (SIPs). All want to earn in crores, not knowing how much to invest for how many years. One famous thumb rule is 15*15*15 which advises people to put in Rs 15000 every month and allow it to grow at 15 per cent for the next 15 years.

Monthly investment amount: Rs 15,000

Expected return rate: 15%

Investment tenure: 15 years

Translates to…

Total invested amount: Rs 27,00,000

Estimated returns: Rs 74,52,946

The total value of returns: Rs 1,01,52,946

Many inquire if earning 15 per cent returns is possible in mutual fund investments. The answer is in the affirmative depending on if you are willing to remain invested for such a prolonged period, say 15 years. Depending on your understanding of the market and your affinity towards volatility, you may choose between large-cap, mid-cap and small-cap funds. Irrespective of the type of mutual fund you may invest in, earning 15 per cent returns is possible with any kind of fund provided if you are willing to stay invested for at least 15 long years.

Is this rule relevant?

The rule is quite relevant in India considering how many people are yearning to earn at least a crore of rupees worth of corpus. Putting in lakhs at one go is not possible, which is why small SIPs to the tune of Rs 15,000 can help you gain at least a crore worth of corpus after 15 years.

Many investors are apprehensive regarding the returns rate considering how the market goes through rough waters after every few years. The extreme volatility has prompted many investors to withdraw their investments during the bearish phase. 

However, what many do not realize is that the markets look volatile only when they view the years during which the markets deliver negative returns. However, the key to being successful in the stock market is to be attuned to its movement, stay focused on your financial goals and remain committed to your investments.

Irrespective of how you define mutual fund investments, the key to successfully attaining an enviable corpus is to continue your investments in them for the long term. However, for that you must start investing now. The best time to invest in mutual funds was yesterday. The second best time is “Today".

Given the current situation in the market, investors do not expect returns beyond 12 per cent. Earning 15 per cent returns seems to be a bit too far-fetched considering how the market has intermittently been going through too many lows and too less highs. This minimizes the validity of the 15*15*15 rule, which means that you can invest Rs 15000 every month for the next 15 years but must not expect beyond 12 per cent returns on the same. 

Even though you may diversify your investments to mitigate the risk of volatility, expecting up to 15 per cent returns, in the long run, is equivalent to overestimating the potential of your investments. This causes many to under-deliver, thus, destroying the purpose for which you had put your money in the first place.

Use the new 10*20*12 rule

Considering how the 15*15*15 rule may not hold true, personal finance analysts are now recommending the 10*20*12 formula. This entails investing Rs 10,000 every month at 12 per cent returns for 20 years.

Monthly investment amount: Rs 12,000

Expected return rate: 12%

Investment tenure: 20 years

Translates to…

Total invested amount: Rs 24,00,000

Estimated returns: Rs 75,91,479

The total value of returns: Rs 91,19,479

The idea behind this formula is that most investors tend to put money in large-cap funds or index funds that ring in roughly 12 per cent returns. However, the compounding factors is effective only for prolonged investments, which is why a 10-year investment is mandated to reach around Rs 1 crore worth of corpus as planned.

Though the investment amount and expected returns are considerably reduced, the prolonged investment tenure makes up for the gap, thus, enabling the accumulation of the much-desired amount.

Power of compounding in mutual fund is explained here.
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Power of compounding in mutual fund is explained here.

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Published: 13 Nov 2022, 10:01 AM IST
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