Many individuals aspire to accumulate wealth and achieve financial independence, and one common avenue they explore is investing in various asset classes, with the stock market, either through direct stock purchases or mutual funds, being a prominent choice. Financial experts often advocate early investment as a means to build a substantial financial nest egg over time.
In the present day, a new generation of investors, often referred to as Generation Z (Gen-Z), also harbors dreams of becoming millionaires or ‘crorepatis’ at a young age. To help them reach this ambitious milestone, market experts propose a straightforward strategy known as the ’15x15x15′ rule. According to this rule, investors who are 25 years old or younger can potentially accumulate Rs 1 crore before turning 40 by adhering to a disciplined investment plan. This plan entails investing Rs 15,000 per month for 15 years, with an expected annual return of 15 percent, ultimately promising ‘crorepati’ status upon redemption. Mutual funds Systematic Investment Plans (SIPs) are often recommended as the most suitable vehicle for implementing this strategy.
Breaking down the math behind this plan, investors would contribute Rs 1.8 lakh per year over 15 years, resulting in a total investment of Rs 27 lakh. With an accumulated profit of a little over Rs 74 lakh during this period, the total corpus reaches the coveted Rs 1 crore mark. However, achieving this goal hinges on three crucial factors: the amount of investment, the number of years, and the expected return.
Market experts caution that maintaining such consistency over the long term can be challenging for investors, as they may be tempted to redeem their investments during market downturns. Nevertheless, unwavering commitment to consistent investments can help protect against inflation and yield significant returns in the long run.
In theory, this strategy can lead to the realization of financial goals, but practical challenges often arise. Aniruddha Bose, Chief Business Officer at FinEdge, notes that more than 95 percent of SIPs fail to complete their fifth year. Unlike low-risk, low-return assets such as fixed deposits or bonds, equity SIP returns exhibit non-linear patterns, introducing volatility into the investment journey. Investors who succumb to the roller-coaster of greed and fear often halt or restart their SIPs, redeem their principal prematurely, attempt to time the market, and incur losses during market corrections, ultimately eroding their capital.
To maintain investment discipline, experts emphasize the importance of establishing a robust investment process. Furthermore, the 15x15x15 strategy’s success relies on the consistency of market returns, as market volatility is an inherent characteristic. Analysts also suggest increasing investment amounts as income grows over the years to counteract these challenges.
Harini Dedhia, Portfolio Manager and Head of Research at Tamohara Investments, recommends that savings and investments should ideally increase in tandem with salary hikes, if not more. She underscores that even with a conservative expectation of a 12 percent return, investors can accumulate a corpus exceeding Rs 1 crore in 15 years by incrementally increasing their savings by 7 percent each year.
For those willing to take on higher risk for potentially aggressive returns of 15 percent or more in the long run, experts suggest considering high-risk funds like small-cap or mid-cap funds. These funds, however, tend to exhibit extreme volatility. During the pandemic, for instance, many small-cap fund Net Asset Values (NAV) dropped by 50-60 percent in just one month, but over the past three years, these same funds have surged by 200 percent. Patience becomes crucial when investing in such volatile assets.
Nevertheless, it’s important to acknowledge that the 15x15x15 strategy may occasionally foster unrealistic expectations, and investors may fall short of their investment goals due to unforeseen uncertainties. As such, experts advise prudence when setting return expectations.
In conclusion, achieving financial milestones like amassing Rs 1 crore through investments is theoretically attainable, but it requires unwavering commitment, a robust investment process, and an understanding of market volatility. Investors should adapt their savings and investments with their income growth and be prepared to weather market fluctuations. Realistic return expectations are essential to prevent disappointment on the road to financial success. Remember, it’s always advisable to consult with a qualified financial advisor before making any investment decisions.
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