Consistency always pays high returns. Just as in life, it pays in the world of investing as well. When an investor invests for a considerably long period in a mutual fund scheme, the returns are disproportionately higher in the latter years vis-à-vis in the initial years.
This happens because the investment grows with time and the percentage of return happens on the inflated sum. From the doyens of investing such as Warren Buffett and Ray Dalio to great scientist Albert Scientist, everyone has acknowledged the power of compounding.
High returns
To showcase the potent power of compounding, we have randomly selected one mutual fund scheme — Franklin India Focused Equity Fund – which was launched nearly 16 years ago in July 2007 and has given reasonably good returns in the recent past i.e., 14.33 per cent CAGR (compound annualised growth rate) per annum since inception.
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And if a wise investor had decided to invest ₹10,000 regularly in this scheme in the past one year, the investment would have grown to ₹1.46 lakh by investing only ₹1.20 lakh.
| Tenure | Return (%) | ₹10K SIP becomes | Investment (Rs) |
| 1 year | 36.55 | 1.46 lakh | 1.20 lakh |
| 3 years | 20.09 | 4.96 lakh | 3.6 lakh |
| 5 years | 19.73 | 10.26 lakh | 6 lakh |
| 10 years | 19.27 | 36.47 lakh | 12 lakh |
| S Inception | 14.33 | 97.58 lakh | 20 lakh |
(Source: franklintempletonindia.com, calculated on personalfn.com)
Likewise, if someone had continued to invest ₹10,000 via SIP (systematic investment plan) for three continuous years, the investment would have grown to ₹4.96 lakh by investing ₹3.6 lakh.
In five years, this investment would have grown to ₹10.26 lakh by making an investment of ₹6 lakh.
Similarly, by making a regular investment of ₹10,000 via SIP over a period of 10 years, investor would have accumulated ₹36.47 lakh by making an investment of ₹12 lakh.
And similarly, if someone had been persistent enough to invest ₹10,000 every month since the scheme’s inception, the investment would have grown to ₹97.58 lakh by making a total investment of ₹20 lakh.
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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Omprakash Tiwary is a business writer who delves into the intricacies of the corporate world. With a focus on finance and economic landscape. He offers readers valuable insights into market trends, entrepreneurship, and economic developments.
