NEW DELHI — The 18x15x12 rule has become a buzzworthy shorthand for investors using systematic investment plans (SIPs) to build long-term wealth. According to this popular formula, investing ₹15,000 monthly for 15 years at an annualized return of 18% can yield a corpus of over ₹1.14 crore. But how reliable is this projection, and what are the key assumptions behind it?

Under the rule, “18” represents the expected annual return in percent, “15” the investment period in years, and “12” the number of monthly contributions each year. The formula helps investors visualize the power of compounding over time and the long-term potential of disciplined investing in equity mutual funds.

Let’s break down the math.

A SIP of ₹15,000 per month over 15 years amounts to a total investment of ₹27 lakh. At an annualized return of 18%, compounded monthly, the investment can grow to approximately ₹1.14 crore, assuming consistent market performance and zero withdrawals. The compound interest works in favor of long-term investors, amplifying gains particularly in the later years of the investment horizon.

However, financial experts urge caution when relying on fixed-return formulas. Historical market returns have varied significantly year to year, and an 18% annualized return is above the average long-term returns of Indian equity markets, which typically range between 12% and 15%.

“The 18x15x12 rule is motivational, not a guarantee,” said Radhika Sharma, a financial planner at FinEdge. “It helps investors understand the value of time in the market, but actual outcomes depend on market cycles, fund selection, and investor discipline.”

For those with more conservative expectations—say, a 12% annual return—the same ₹15,000 SIP would grow to around ₹75 lakh in 15 years.

Investors looking to build a corpus of ₹1.14 crore at lower return rates would need either to extend their investment horizon or increase their monthly contribution. For example, with a 12% return, it would take approximately 20 years of investing ₹15,000 monthly to cross the ₹1 crore mark.

As always, experts recommend periodic reviews of SIPs, diversification across asset classes, and alignment with long-term financial goals.

By Staff Writer, Courtesy of Forbes | December 22, 2024 | Edited for WTFwire.com
Source: Economic Times – ET Wealth