You might have come across the 15*15*15 Rule in Mutual Funds to create 1 Crore wealth. Let us understand the risks of such marketing gimmicks.
In the finance industry, you will always come across such a rosy picture. One such rosy picture I debunked is about SWP. You can refer to these posts “Systematic Withdrawal Plan SWP – Dangerous concept of Mutual Funds” or “SIP Vs SWP Mutual Funds – Which is better in India?“.
In the finance industry, every story is created to gather the business. Hence, you have to look into the pros and cons of such stories before blindly investing.
BEWARE of 15*15*15 Rule In Mutual Funds to create Rs.1 Crore!!
What is the 15*15*15 Rule in Mutual Funds? The concept is quite straightforward. By investing Rs. 15,000 each month for a duration of 15 years, and assuming a return rate of 15%, you could accumulate Rs. 1 crore after 15 years. This approach appears simple, direct, and feasible. However, it involves a lot of conflict-free advice and impractical approaches.
# They forget the importance of asset allocation
For many of those who spread this rule always believe that the only asset available on this earth is EQUITY. It is not their fault because their income depends on your investment in equity mutual funds. Hence, obliviously they have to plant such stories right?
We must not deny the importance of equity for long-term wealth creation. However, relying on a single asset class is highly risky. Prolonged market crashes or prolonged market sideways may evaporate your returns. Hence, to manage the risk one must have a debt portfolio also in their portfolio.
At least those who preach this theory must understand how experienced the investor is before exploring their 100% into equity. Sadly they least bother. Because for them their next 15 years’ income matters not investors’ returns.
I would like to share Jason Zweig’s commentary from Benjamin Graham’s book, “The Intelligent Investor.”
In the same book, Benjamin Grahm mentioned even if you are a full-time equity investor and you are an enterprising investor (An enterprising investor is someone who is willing to put in the time and effort to research securities, they are looking for securities that are sound and more attractive than the average, they are willing to take on more risk in exchange for higher returns and they consider their investments to be similar to a full-time business) then he is not suggesting to go beyond 75% into equity. Sadly we ignore such principles.
# Long Term Equity Investing is HOPE but NOT GUARANTEE
Many of us have a firm belief that if we look into past equity market records, even though there are ups and downs, in the long term it always provided the best inflation-adjusted returns. Sadly it is HALF TRUTH. Refer to my earlier post regarding this by comparing the Nifty 50 last 25 years of data “Is It Wise for Young Long-Term Investors to Put 100% in Equity?“.
Yes, the probability of generating inflation-adjusted returns is high for long-term holding. But it does not mean GUARANTEED. Do remember that I am using the inflation-adjusted returns but not assuming 15% returns.
# Long-term equity investing is a game of consistency and behavior
Only around 50% of equity investors in India hold more than 2 years (according to AMFI). Sadly there is no data on how much % of investors are holding more than 5 years or 10 years. To generate decent inflation-adjusted long-term returns, you must have patience and be ready to face ups and downs with calm. If all equity investors (or for that matter experts) have such traits, then all might have created wealth through equity. Only few succeed in this journey. Sadly, those who preach this standard formula of 15*15*15 Rule In Mutual Funds are aware of it. Simply they float such rosy formulas to attract the money from investors.
# 15% Returns is not GUARANTEED
If you are a first-time investor or new investor in the equity market or equity mutual funds, then don’t believe such stories of expecting 15% from your PORTFOLIO. Refer to the article link that I shared above. Don’t just the returns based on past performance. Whether it may happen or not in the future is unknown.
Instead, do the proper asset allocation to manage the risk of equity. You must include debt also in your portfolio. Only for the equity portfolio, it is better to expect around 10% returns (only if you are a long-term investor). Do remember that when you diversify your portfolio between equity to debt, then the 10% return is only for your equity portfolio but not for the overall portfolio.
Be realistic in your expectations. Expect more and if it does not happen, then it is you who has to suffer but not the finance industry which is planting such stories.
Conclusion – Each investor has a distinct financial history influenced by their past experiences and personal risk tolerance. It’s important to be cautious of marketing strategies aimed at attracting investors. Perform your own risk evaluation, understand the inherent risks of the equity market (even if you are a long-term investor), and have a plan for a plan of long-term investment.
