Compounding is one of the key secrets of wealth creation. When you invest a small sum in a stock or a mutual fund and keep it locked for a long period, it grows at a fast pace in the later years than it did in the initial years.
This happens because the returns generated in the first few years get added to the principal, thus helping the investment multiply over a long period of time. Almost all the proponents of value investing laud the magical power of compounding. Warren Buffett once said that ‘Time is your friend; impulse is your enemy. Take advantage of compound interest and don’t be captivated by the siren song of the market.’
To demonstrate the power of compound, we randomly select one aggressive hybrid mutual fund scheme – ICICI Prudential Equity & Debt Fund and examine its returns since the launch of scheme in 1999.
As the table below shows if someone had invested ₹1 lakh in this scheme, it would have grown to ₹1.12 lakh in one year time.
Likewise, if someone had invested ₹1 lakh in this scheme three years ago, it would have swelled to ₹1.60 lakh. In five years, the investment of ₹one lakh would have grown to ₹2.60 lakh.
In 10 years period, an investment of ₹one lakh would have swelled to ₹3.66 lakh. And if someone had invested ₹one lakh at the time of scheme’s inception, the same ₹1 lakh investment would have multiplied to ₹36.14 lakh.
Notably, historical returns do not guarantee scheme’s future returns. This means just because a scheme has performed well in the past, it does not mean it will continue to perform at the same pace in future as well.
More about the scheme
The scheme was launched on Nov 3, 1999. Its benchmark index is CRISIL Hybrid 35+65 – Aggressive Index and additional benchmark is Nifty 50 TRI. The scheme’s expense ratio is 1.02 percent (direct) and 1.60 per cent (others).
The scheme has closing AUM (assets under management) of ₹39,886 crore as on Jan 31, 2025. Its portfolio constituents include Samvardhana Motherson International, Maruti Suzuki India, TVS Motor Company, Eicher Motors, ICICI Bank, HDFC Bank, Ambuja Cement and others.
Note: This story is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment related decision.
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