In today’s inflation-driven times, every common man dreams of having a solid fund for his future, so that he doesn’t have to beg for retirement, his children’s higher education, or any medical emergency. People often shy away from investing, thinking that becoming rich requires millions of rupees. But financial experts believe this is just a myth.
With proper planning and discipline, even small savings can make you a millionaire. A perfect example of this is the 20x12x20 SIP Rule, which multiplies your money through the power of compounding. Let’s understand in detail how this magical formula works.
What is the 20x12x20 SIP Rule
This rule is as simple to understand as its impact is powerful. This formula is built on three main pillars that form the foundation of your investments. The first ’20’ represents your monthly savings, meaning you need to make a disciplined SIP of ₹20,000 every month.
The second digit, ’12’, represents the average annual return you can expect from equity mutual funds over the long term. The third and most important digit, ’20’, represents the investment timeframe, meaning you need to continue this investment for 20 years without interruption.
Investment of ₹48 lakh and a fund of ₹2 crore
When you deposit ₹20,000 every month for 20 years, you end up investing a total of ₹48,00,000 (Rs 48 lakh). This is where the real game of compounding begins. At an average annual return of 12%, the interest earned on your savings after 20 years amounts to approximately ₹1.52 crore.
Thus, when your investment period ends, you receive a whopping ₹1,99,82,904 (approximately ₹2 crore) at maturity. This simply means that time and patience have combined to multiply your invested money by more than four times. This power is only achieved by staying invested for a long period of time.
Why is this formula special
According to market experts, the biggest strength of SIPs is discipline and rupee-cost averaging. The stock market can sometimes rise and sometimes fall, but over the long term, equity mutual funds have delivered average returns of 12% or more despite all the fluctuations.
Through SIPs, you invest every month, earning you more units when the market falls and increasing your portfolio value when the market rises. This is why this formula is considered the safest and most reliable way for middle-class families to become wealthy.
Keep these things in mind before investing
If you too want to embark on this path to becoming a millionaire with this ironclad rule, it’s essential to follow a few rules. Consistency is key; never interrupt your SIP, as the biggest benefits of compounding are seen in the final years.
Never fear market declines; instead, view them as an opportunity to buy more units at a lower price. Furthermore, as your income increases, try to step up your SIP amount. To choose the right mutual fund, understand your risk profile or consult a certified financial planner.