Magic of compounding: ₹1 lakh investment in this mutual fund at the time of launch would have swelled to ₹1.50 crore

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₹1 lakh in a mutual fund scheme at the time of its launch in August 1998 would have swelled to a whopping ₹1.53 crore in 25 years? Sounds incredible but true! The rationale behind this is far simpler than it sounds: compounding. This means that being invested for a long period of time accrues greater dividends than one can imagine. Since mutual fund schemes, by default, reinvest the earnings made in the initial years, the returns in the later years are naturally higher than those earned in the initial years.

Compounding is seen as a key reason for the massive wealth generation by the doyens of investing such as Warren Buffett. Here, we deconstruct the benefits of compounding by taking an illustration of one randomly selected mutual fund scheme i.e., Aditya Birla Sun Life Flexi Cap Fund. (Source: AMFI) As one can see from the table above, an investment of ₹1 lakh would have grown to ₹1.40 lakh in one year.

If the same money were invested for a period of three years, it would have swelled to ₹1.61 lakh. Likewise, if an investor had invested ₹1 lakh for a period of five years, the investment would have appreciated to a total of ₹2.11 lakh. Moving on, if an investor had invested ₹1 lakh for a decade, the investment would have grown to ₹4.71 lakh.

ALSO READ: How to become rich: Your ₹5000 monthly SIP can help you grow ₹5.22 crore. Mutual fund calculator explains And since the mutual fund scheme delivered an exceptionally high performance of 21.73 per cent in the past 25 years and seven months, an investment of ₹1 lakh would have swelled to ₹1.53 crore. Aditya Birla Sun Life Flexi Cap Fund was launched on August 27, 1998, and is managed by Dhaval Joshi and Harish Krishnan.