How to use the 8-4-3 rule of compounding to save Rs 1 crore quickly (2024)

FAQs

How to use the 8-4-3 rule of compounding to save Rs 1 crore quickly? ›

The 8-4-3 rule of compounding

The rule of 8-4-3 when it comes to compounding indicates a style of investment that accelerates growth with time. Initially, a corpus doubles within 8 years through an average annual return of 12% subsequently another doubling happens for the same period after another 4 years following its initial setting up.

If you invest Rs 10,000 every month — 40% of your monthly salary — you can accumulate Rs 1 crore in a little more than 20 years or 248 months. As you can see, the more you can invest, the faster you can achieve your goal.

15-15-15 rule to make Rs 1 crore from mutual funds

Assuming an equity fund offers a 15% annual return, you would need to invest Rs 15,000 per month via SIP for 15 years to achieve your goal of reaching Rs 1 crore.

How to build Rs 1 cr corpus in 5 years though SIP investment. Naveen Kukreja, Co-founder & CEO, Paisabazaar, says that assuming an annualised return of 12 per cent, one needs to invest Rs 1.20 lakh per month through the SIP route to get a Rs 1 crore corpus.

It will take only half the time, i.e., four years, for the next Rs 33 lakh. To save the third Rs 33.33 lakh, it will take you only three years. So, in 15 years, you can save Rs 1 crore. At the end of the 21st year, you will save Rs 2.22 crore — it takes only six years to double your Rs 1 crore to Rs 2 crore.

Given your comfort with moderate risk, consider investing in two hybrid funds and opting for a systematic withdrawal plan (SWP). Balanced advantage and multi-asset funds typically yield 10-12% long-term average returns, offering a mix of equity, debt and gold.

It is not difficult to make your first crore, but it will take some effort. You will need to invest time and money wisely. Making your first crore depends on your investments, saving habits, and current or future income. If you are in your twenties, now is probably the time to begin investing.

A Systematic Investment Plan (SIP) for 1 crore in 10 years is the preferable route to achieve the target. SIP investment for 1 crore in 10 years is a perfect route offered by a Mutual fund in which an investor may invest a certain amount at regular intervals. It might be once a month or once a quarter.

If you invest ₹30,000 per month in a Systematic Investment Plan (SIP) for a period of 5 years, assuming an average annual return of 12% on your SIP investment, using the SIP calculator, your returns will be: Your invested amount will be: ₹18,00,000. Estimated Returns will be will be: ₹6,74,591.

What is the 15x15x15 rule? ›

More About the 15x15x15 Rule for Mutual Fund Investments

It says that if you invest Rs. 15,000 per month via SIP in an equity mutual fund that is capable of generating an average return of 15%, you are most likely to become a crorepati in 15 years (as stated in the example above).

The Investment: You should invest Rs 15,000 per month. The Tenure: The total of your investment should be 15 years. It means that you will invest Rs 15,000 every month for the next 15 years. The Return: Your expected returns on your investment should be 15%

For instance, by initiating a monthly SIP of approximately ₹5,000 and maintaining an annual SIP step-up of 15 percent, coupled with a 15 percent annual mutual fund return, investors could potentially accumulate around ₹5.22 crore over 25 years.

How much is Rs. 5,000 for 5 years in SIP? If you invest Rs. 5,000 per month through SIP for 5 years, assuming 12% return. The estimate total returns will be Rs. 1,12,432 and the estimate future value of your investment will be Rs. 4,12,431.

Value of INR 20,000 per Month in SIP

If an investor invests INR 20,000 per month for a period of 5 years, he will be able to earn INR 17 lakh as the overall income generated from SIP. The total investment in the tenure of 5 years will be only INR 12 lakh.

For example, if an investment scheme promises an 8% annual compounded rate of return, it will take approximately nine years (72 / 8 = 9) to double the invested money.

The 8-4-3 rule implies that your money should double roughly every 8 years if invested at an average annual return of 8%. By applying this rule, your money doubles every 8 years, quadruples in 16 years, and multiplies by 8 in 24 years due to compounding.

Answer and Explanation:

Since it is compounded semi-annually, the interest rate would be 8% / 2 = 4%. For semi-annual, the number of years would be 17.7 / 2 = 8.8. Hence, it will take 8.8 years to double the investment.