The 15x15x15 investing rule may help you amass a crore but has its limitations too

The 15x15x15 formula, though catchy and easy to remember, has its flaws and limitations when it comes to SIP investing. Before embracing this seemingly attractive investment strategy, it's important to recognize its drawbacks and take a broader perspective on where to allocate your funds.

Abeer Ray
First Published5 Jun 2024, 11:05 AM IST
The 15x15x15 rule may look alluring though you must be willing to look at its potential flaws too.
The 15x15x15 rule may look alluring though you must be willing to look at its potential flaws too.

The 15x15x15 rule is a straightforward formula that illustrates how compounding and systematic investment plans (SIPs) can enhance your mutual fund portfolio. This is an explanation of the formula.

  • 15 years: The ideal period to invest is 15 years. Investing for the long term consistently allows you to reap the full benefits of compound interest.
  • 15k SIP: A monthly investment of 15,000 is advised. This amount is negotiable based on your goals and financial situation.
  • 15% annual return: This is the anticipated average return on investment per year. Remember that this is only an estimate, and your actual returns could differ based on the state of the market and the mutual funds you choose.

The formula can be best illustrated with the help of the following example.

Assuming that you put in 15,000 for 15 years in a fund that has earned 15% returns over the period. This amounts to

Invested Amount: 27,00,000

Estimated Returns: 74,52,946

Total Value of the Returns: 1,01,52,946.

Also Read: Mutual Funds: What is a step-up SIP and how does it work?

Does the 15x15x15 formula work?

While the 15x15x15 rule offers a useful starting point, it’s essential to consider several key factors:

Market volatility: The 15% yearly return in the 15x15x15 formula is an example, not a promise. Mutual fund investments carry inherent risks, and actual results might vary greatly.

Stock markets are naturally volatile, therefore their value swings. This can have an impact on your mutual fund returns. The mutual funds you choose also have an impact, as various funds invest in different assets and have different risk profiles, resulting in a variety of potential returns. In general, the longer you stay invested, the more market volatility tends to average out, potentially bringing returns closer to long-term historical averages, though this is not guaranteed.

Asset allocation matters: Although it is a helpful simplification, asset allocation—which is essential for risk management in mutual fund investing—is not included in the 15x15x15 formula. The risk profiles of various asset classes, including stocks, bonds, and cash equivalents, vary. By spreading your investments across these sectors, you can spread your risk and possibly reduce the volatility of your entire portfolio.

Also Read: ‘You must start an SIP…’ Radhika Gupta's advice on investing in mutual funds to Shark Tank India staff backstage

Your asset allocation ought to align with your financial objectives. For instance, a person saving for retirement might allocate more to stocks in anticipation of potential growth, but a person aiming to save money quickly might prioritize stability by allocating more to bonds.

Additionally, think about your risk tolerance. Bonds may be the preferred asset allocation for investors with a lower risk tolerance, while equities may be the preferred asset allocation for investors with a higher risk tolerance and the potential for higher returns.

To each, his own: Is a single fund investment of 15,000 SIP appropriate for all investors? The 15x15x15 rule is a good place to start, but customization of your SIP strategy to meet your unique requirements is essential for successful investing.

Are you setting aside money for your child’s education, your retirement, or a down payment on a house? Diverse financial goals require a range of risk tolerances and investment horizons. How at ease are you with potential losses on investments? Knowing your level of risk tolerance will assist you in selecting mutual funds that fit your needs and creating an asset allocation plan that works.

What is the duration of your intended investment? Greater risk tolerance is possible with longer investment horizons because the market has more time to recover from downturns.

Overlooks fees and taxes: Investment fees and taxes can diminish your returns, yet the 15x15x15 approach fails to consider these costs.

Above all, it’s crucial to figure out the feasible amount you can invest monthly, factoring in your essential expenses and savings targets. Don’t let the daunting 15x15x15 model deter you. Begin with a modest SIP and scale it up gradually as your income increases. Continuously evaluate your financial status and investment objectives. Modify your SIP or asset allocation accordingly to ensure you’re on the right path.



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First Published:5 Jun 2024, 11:05 AM IST
HomeMutual FundsThe 15x15x15 investing rule may help you amass a crore but has its limitations too

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