For wealth creation, one of the first rules that investors must know is the magic of compounding. This means if you want to make your wealth grow by leaps and bounds, one of the key principles that you are supposed to adhere to is to remain invested.
Warren Buffett attributes his wealth creation to compounding, among other factors. Albert Einstein called compounding the eighth wonder of the world.
This is a doctrine that appeals to every investor who is in the market for a long haul.
The rule of compounding states that investors should not panic when the markets crash and not get carried away when they spike. So, one should stay invested and continue to invest over a long duration. And once you go through a number of market cycles, your investment invariably would grow considerably.
Here we illustrate this by sharing details on a value fund that delivered 17.75 percent annualised return in the past one decade.
Nippon India Value Fund (regular) delivered an annualised return of 17.75 percent in the past 10 years. The benchmark index (Nifty 500 TRI) returned during the same period lower than this and stood at 15.20 percent. This is a popular fund with a total assets under management (AUMs) of ₹5,763 crore.
Here we have given a lowdown on the performance delivered by Nippon India Value Fund across tenures. In the table, we have also calculated the capital appreciation if an investor had made an investment of ₹one lakh.
| Tenure | Return (%) | Returns if ₹1 lakh invested |
| 1 | 22.75 | 122,750 |
| 3 | 28.30 | 211,193.22 |
| 5 | 18.41 | 232,778 |
| 10 | 17.75 | 512,400 |
(Source: AMFI, CAGR returns as on Oct 18, 2023)
As we can see in the table above, if someone had made an investment of ₹one lakh in the scheme a year ago, it would have swelled to ₹1,22,750 by now (based on a return of 22.75 percent per annum which the fund has delivered).
Similarly, if someone had invested ₹one lakh in the scheme three years ago, it would have grown to ₹2,11,193 based on the 28.3 percent annualised return which the scheme has delivered.
Additionally, the mutual fund scheme would have grown to ₹2.32 lakh if you had invested ₹one lakh five years ago.
And upon pushing the timeline by another five years i.e., by a total of 10 years, the investment of ₹one lakh would have grown to ₹5,12,400 by now. This is based on the annualised rate of return of 17.75 percent.
Disclaimer: 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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Updated: 20 Oct 2023, 09:21 AM IST