Make Rs 1 crore fast with mutual funds using 8-4-3 investment rule!
Among various requisites to become successful as an investor, one of them is having patience to see your investment grow slowly during the initial phase and reap the benefit of compounding during later years. Mutual funds also use compounding to grow investors money over time.
In this article, we will learn how one can utilise the compounding magic in mutual funds to make Rs 1 crore faster. Everyone aspires to become a ‘crorepati’ as having Rs 1 crore as a corpus is considered an important milestone for many salaried and middle-class investors. People often ask what it takes to become a ‘crorepati’? Is there a specific time required to accumulate Rs 1 crore? Is it possible to accumulate such a huge amount? The answers to these questions lie in the 8-4-3 investment rule.
What is the 8-4-3 investment rule?
The 8-4-3 rule shows how any financial goal can be reached through the power of compound interest. It is a concept that can be used to help your investments grow over time. It is not a specific investment strategy, but a simple way to understand the potential pace of growth.
Also read: Mutual Funds: How new tax rules impact your investments?
How does 8-4-3 rule of compounding work?
Take an example of how this rule grows money: Suppose you invest Rs 20,000 every month in an instrument that gives 12% interest per annum. Assuming it is compounded annually, you would make Rs 32 lakh in eight years. The first Rs 32 lakh is made in 8 years, but the next 32 lakh is made in just 4 years at the same rate of interest. So, at the end of 12 years, a Rs 20,000 monthly investment in an investment tool would make Rs 64 lakh.
When this amount is left for another 3 years along with continued Rs 20,000 per month investing, the corpus would be Rs 1 crore.
Your investment might follow this growth pattern:
Initial Growth (Years 1-8): Steady growth in your investment during the first eight years.
Accelerated Growth (Years 9-12): In the next four years, your investment achieves similar growth to what it did in the first eight years.
Exponential Growth (Years 13-15): In the final three years, your investment again experiences growth comparable to the previous four years.
Understanding this rule can help you move in the right direction towards your financial goals. With discipline and the power of compounding, it is possible to double or triple your savings over time.