Have you heard of 12-15-20 formula?

Wealth creation is not rocket science. For this you just have to adopt the right investment strategy. In this, the 12-15-20 formula can be helpful. Here, it is important to understand the meaning of 12, 15 and 20. The number 12 means 12% return, 15 means continuous investment for 15 years and 20 means depositing Rs 20,000 every month. With this formula, someone who starts investing at the age of 25 can become a crorepati by the age of 40.

Now the question is which scheme offers a 12 percent return.Well, it is an equity mutual fund investment via systematic investment plan (SIP). Mutual funds are linked to the market, so their returns vary. However, according to financial experts, equity mutual funds can give an average return of 12 percent in the long term and in some cases, this return can be even higher.

You can check the 1, 3 and 5 year performance of any mutual fund scheme by going to AMFI website. AMFI is the mutual fund companies’ association. For example, the 5-year return of ICICI Prudential Bluechip Fund is 18.62 percent, Nippon India Multi Cap Fund’s return is 20.75 percent, Parag Parikh Flexi Cap Fund’s return is 24.09 percent and Quant Small Cap Fund’s 5-year return is 36.81 percent. These returns are till April 1, 2024 for direct mutual fund schemes.

All mutual fund schemes offer two types of plans, direct and regular. In the direct plan, the investor invests directly with the asset management company. There is no distributor in middle…while in the regular plan, the investor invests through an intermediary like a distributor, broker or banker…the asset management companies pay a distribution fee to these intermediaries…which is charged from the scheme.

Let’s see  how the 12-15-20 formula  can lead to wealth creation with the help of the Money9 SIP calculator. If you invest a monthly SIP of Rs 20,000 in an equity mutual fund, you will invest a total of Rs 36 lakh in 15 years. On this, you will earn a return of around Rs 65 lakh at an estimated 12% annual return. Hence, after 15 years, your corpus will be Rs 1, 00,91,520.

Now, you might be wondering how to arrange Rs 20,000 for investment. Another financial rule helps you in arranging this. According to this rule, every person should invest at least 20 to 30 percent of their income. suppose your salary is Rs 65,000 per month. Out of this, you should invest 30 percent, which is Rs 19,500. So, you can take out money from your salary.

Many times people postpone investment just because they have a small amount. Never do this! You can start investing with a small amount. Now, as your income increases every year, keep increasing your investment by 10 or 20 percent. The sooner you start investing, the sooner you will achieve your wealth creation goal.

The past performance of a mutual fund scheme is not a guarantee of future returns. So, choose the scheme according to your risk appetite and investment horizon. Review the scheme’s performance every 6 months or once a year so that necessary changes can be made. If needed, consult a financial planner. Always remember that along with earnings, investing in right place can make your dream of becoming a millionaire come true.