What is compounding?
Compounding is what happens when your money starts earning returns — and then those returns start earning returns too. It’s like a snowball rolling down a hill: the longer it rolls, the bigger it gets.
Let’s say you invest Rs. 1,000 in a mutual fund offering 10% annual returns. After one year, you have Rs. 1,100. In the second year, you earn 10% not on your original Rs. 1,000, but on Rs. 1,100 — giving you Rs. 1,210. This might seem small at first, but give it 10, 15, or 20 years, and you’ll see exponential growth.
Compounding rewards patience. The earlier you start and the longer you stay invested, the more powerful your returns become — which is exactly what the 15-15-15 rule aims to leverage.
What is the power of compounding?
The true magic of investing lies in compounding — not just earning returns, but earning returns on those returns. Over time, this cycle creates a snowball effect, where your money grows faster the longer it stays invested. It's not linear growth; it's exponential.
For example, investing Rs. 1,000 for 10 years at 10% per annum gives you about Rs. 2,593. But stretch that to 20 years? It jumps to Rs. 6,727. And if the rate of return increases to 15%, the outcome becomes even more dramatic. That’s the power of time and patience in action.
The real takeaway here: start early and stay consistent. Even if your monthly investment is small, the time you give your money can make a massive difference. The power of compounding isn’t just mathematical it’s emotional too. Watching your investments grow can boost your confidence and help you stay consistent even when markets fluctuate. Open Your Mutual Fund Account Today!
Examples of compounding
Let’s break down compounding with some real-world-style examples to see how it actually works:
1. SIP in action
Say you invest Rs. 5,000 every month through a SIP in a mutual fund earning 12% annually:
- After 5 years: Around Rs. 4.1 lakh
- After 10 years: Around Rs. 11.6 lakh
- After 20 years: Over Rs. 50 lakh
This is possible because each year’s earnings are reinvested and start generating earnings of their own.
2. Boosted returns, better results
Let’s say the returns increase to 15% instead of 12%:
- After 20 years: Your investment could cross Rs. 76 lakh — a huge jump thanks to compounding at a higher rate.
3. Increasing contributions
If you start with Rs. 3,000/month and increase it by 10% annually, your Rs. 10 lakh corpus could grow to nearly Rs. 60 lakh in 20 years (assuming 12% annual return). This shows how compounding plus step-up SIPs can supercharge your results.
4. Real-life fund performance
Historically, several equity mutual funds in India have delivered 12–15% returns over the long term. Despite short-term volatility, staying invested through market ups and downs can help you benefit from long-term compounding.
It’s not just about how much you invest, but how consistently and intelligently you do it. Understanding compounding helps you make smarter long-term decisions. Explore Top-Performing Mutual Funds!
Benefits of 15-15-15 rule in mutual fund investments
Following the 15-15-15 rule isn’t just a clever trick — it’s a structured way to achieve your financial goals. Here's how it helps:
1. Long-term wealth creation
Investing 15% of your income every month in a mutual fund that delivers 15% annual returns for 15 years could give you a sizeable corpus. For instance, if your monthly income is Rs. 50,000, investing Rs. 7,500 per month could yield more than Rs. 57 lakh after 15 years.
2. Protection against inflation
Inflation quietly eats away at your money’s value. But if your investment grows at 15% per year while inflation hovers around 6%, you’re not just preserving value — you’re increasing it. For example, Rs. 1,000 invested at 15% annually for 20 years grows to Rs. 16,366 — much more than what you’d need to outpace inflation.
3. Goal-based discipline
Having a structured approach like 15-15-15 helps you stay focused. Whether your goal is a child’s education, early retirement, or buying a home, this rule creates a clear, actionable roadmap.
4. Simplicity with impact
The best part? You don’t need to overthink or constantly chase returns. Just be regular with your SIPs, stay invested, and let the numbers do their job.
Is the 15-15-15 rule right for you?
The 15-15-15 rule is a widely known thumb rule in mutual fund investing. It suggests that investing Rs. 15,000 per month for 15 years at an annual return of 15% can potentially generate a corpus of Rs. 1 crore. This approach highlights the benefits of compounding and disciplined long-term investing.
However, this rule may not be suitable for everyone. It’s best for investors who have a long-term financial goal, can consistently invest without fail, and are comfortable with market-linked risks. If your goals are short-term or if you prefer safer, fixed-return options, the 15-15-15 rule might not align with your investment strategy.
Limitations of the 15-15-15 rule in mutual funds
While the 15-15-15 rule offers a simplified outlook on wealth creation, it is based on assumptions that may not hold true for all investors. A consistent 15% annual return is not guaranteed—actual returns can vary significantly based on fund performance and market volatility.
Additionally, inflation can reduce the purchasing power of the Rs. 1 crore you accumulate. The rule also assumes that you won’t need to pause or withdraw your SIPs during the 15-year period. Therefore, while the 15-15-15 rule is useful for understanding the power of compounding, it should not be seen as a one-size-fits-all formula.
Important points to remember for the 15-15-15 rule
Consistency is key: The 15-15-15 rule only works if you maintain your SIP of Rs. 15,000 every month without fail for 15 years.
Returns are not guaranteed: Earning 15% returns annually is an assumption, not a certainty. Actual returns may be higher or lower.
Market fluctuations matter: Since mutual funds are market-linked, volatility can impact short-term performance, even if long-term trends are positive.
Stay invested: Withdrawing funds or stopping SIPs midway can significantly reduce your final corpus.
Review regularly: It's important to review your investment portfolio and make adjustments if needed to stay aligned with your long-term goals.
Inflation impact: A corpus of Rs. 1 crore in 15 years might not have the same value due to inflation. Always plan with real returns in mind.
Key takeaways
- Invest 15% of your income every month into mutual funds.
- Do it consistently for 15 years — no breaks, no excuses.
- Aim for 15% annual returns, which is achievable through equity mutual funds over the long term.
- Let compounding do the heavy lifting. The longer you stay invested, the greater your money multiplies not just linearly, but exponentially.
- Start small if needed. You don’t need to wait until you can invest large sums. Even starting with Rs. 100 or Rs. 1,000 per month can put you on the right path.
- Use tools like SIP calculators to visualise your potential corpus and track progress toward your financial goals.
Conclusion
The 15-15-15 rule isn’t a gimmick — it’s a real-world strategy grounded in the time-tested power of compounding. In a world of overwhelming financial advice, this rule offers clarity and direction: set aside a fixed percentage of your income, be patient, and stay invested.
It works because it builds discipline, makes investing habitual, and leverages time and returns to build serious wealth. Whether your goal is financial independence, your child’s education, or just peace of mind, this approach can serve as your foundation. Consistency, not capital, is what fuels long-term wealth. If you are ready to start small and think big, even Rs. 100 a day can spark the journey. Start Investing or SIP with Just Rs. 100!
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