How to achieve financial goals faster with step-up SIPs this new year?

livemint.com:

Diwali signals the commencement of a new year for numerous Hindus in India. Spanning five days, this festival is marked by the illumination of lights, vibrant fireworks, and festive feasts. The significance of designating this celebration as the harbinger of a new start lies in its association with the goddess Lakshmi, the revered Hindu deity symbolizing wealth and prosperity.

Many investors look forward to planning their new year with either new investments or upscaling those existing in their investment portfolios. Novelty is the factor that catches most new investors off guard though not all investments may not serve your purpose. This underlines the need to continue existing investments like mutual funds or topping them up regularly to earn higher returns while beating the impact of inflation in the long run.

Recognizing the significance of compounding is essential to grasp the role mutual fund investments play in achieving your wealth accumulation objectives. Compounding is the process wherein the returns on your investments generate further returns over time, leading to a compounded growth of your investment portfolio. This compounding phenomenon is particularly powerful in mutual funds, as returns are automatically reinvested, fostering compounding on both your initial investment and the accrued returns.

To exemplify the impact of compounding, let’s examine the following scenario. Imagine allocating ₹10,000 every month to a mutual fund with an anticipated annual return of 12 per cent. The investment when continued for 10 years would yield the following results.