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.
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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.
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