One of the key pillars of wealth generation is compounding. This means a humble investment on a regular basis can lead to massive growth over a long period of time. Veteran wealth advisors tend to assert that it is not the timing of investment but the time period for which the investment remains locked which can lead to massive wealth creation.
This happens because the investment made in the early few years reap dividends which are added to the principal. As the time rolls on, the return accrues on the increased sum which also includes dividend earned in the few years. As the earning keeps growing with each successive year, the corpus continues to grow.
Magic of compounding
Here we demonstrate the power of compounding by hand-picking one mutual fund – Tata Large & Mid Cap Fund. This scheme was launched on Feb 25, 1993.
If someone had invested ₹10,000 every month for one year in this scheme via systematic investment plan (SIP), it would have fallen to ₹1.16 lakh by investing a total of ₹1.20 lakh.
This is because the financial markets have been reeling under pressure for the past few months, and are currently down 16 percent from their peaks. However, if an investor had continued ₹10,000 via SIP consistently for 3 years, the investment would have grown to ₹4.45 lakh while the total investment stands at only ₹3.6 lakh .
Over a five year period, the total investment of ₹6 lakh would have swelled to ₹9.31 lakh.
And if someone were regular in investing ₹10,000 via SIP in this scheme since inception, it would have grown to ₹3.71 crore. This scheme has delivered an annualised return of 17.38 per cent since its launch in 1993, reveals the data on tatamutualfund.com.
More about the scheme
The scheme was launched on Feb 25, 1993. It is managed by fund managers Chandraprakash Padiyar and Meeta Shetty.
The key constituent stocks are HDFC Bank (9.55%), Varun Beverages (4.59%), RIL (4.46%), SBI (4.23%) and ICICI Bank (4.02%). Sector wise allocation is financial services (32.65%), FMCG (6.92%), healthcare (6.79%), chemicals (6.46%) and capital goods (5.89%).
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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