Power of Compounding: Investment is a good habit. The sooner it is started, the better the results and the higher the corpus, specially in cases where compounding is involved. But our excuse for not saving and investing money is that I don’t save much, so even if I invest small amounts, it will make a big difference in my future financial status. But that’s not the case when you invest in financial instruments that provide compound interest, growth, or returns, your small contributions can help you create a large corpus in the long run. This applies to SIP investments in mutual funds, which also provide compound growth.
There are mutual fund schemes that have been around for up to three decades and that have turned small monthly SIPs of Rs 2,000 and Rs 3,000 into multiple crores since their inception.
We will go through the performance of those funds and SIP calculations, but before that, know how compounding works.
Compound growth/interest
Compound interest is interest on your investment that helps grow your investment over time.
E.g., if you have invested Rs 1 lakh in a scheme where you are getting 15 per cent compound growth in a year, your total amount after one year will be Rs 1,15,000.
This amount will become your principal amount for the next year, and you will get a 15 per cent return on Rs 1,150,000 and not on Rs 1,00,000, which was your initial principal amount.
In one or two years, compound growth may not give you significant returns, but if you leave this amount to grow for 20 years, it will become Rs 16.37 lakh.
It will happen because of compound growth.
If you have a simple 15 per cent growth on your investment, your Rs 100,000 will turn into just Rs 4 lakh in 20 years.
The impact of Rs 2,000 and Rs 3,000 monthly SIPs in mutual fund schemes that are 25 years and older
Nippon India Growth Fund
The fund, launched in October 1995, has given a 23.47 per cent CAGR since its inception.
A Rs 2,000 monthly SIP in the fund in 28 years, or a total of Rs 6,72,000 investment, has turned into Rs 4,75,82,606.
A Rs 3,000 monthly SIP in the fund in 28 years, or a total of Rs 10,08,000 investment, has turned into Rs 7,13,73,912.
Franklin India Prima Fund
The fund launched in December 1993 has completed its 30 years. It has given a 21.1 per cent annual return since its inception.
A Rs 2,000 monthly SIP in the Franklin India mutual fund scheme since its inception has given a total of Rs 4,39,35,876.
A Rs 3,000 monthly SIP in the fund since inception its inception has turned into Rs 6,59,03,816.
Franklin India Flexi Cap Fund
The fund that was launched in September 1994 has given 20.39 per cent annual returns since its inception.
A Rs 2,000 monthly SIP in the fund since its inception has given a total of Rs 3,24,24,943.
A Rs 3,000 monthly SIP in the fund since its inception has given a total of Rs 4,86,37,417.
HDFC ELSS Tax Saver
The fund was launched in March 1996 and has given 19.16 per cent annual returns ever since.
A Rs 2,000 SIP in the fund since its inception has turned into Rs 1,93,88,360.
A Rs 3,000 SIP in the fund since its inception has given a total of Rs 2,90,82,539.
Nippon India Vision Fund
The scheme that was launched in October 1995 has given 19.13 per annual returns ever since its launch.
A Rs 2,000 monthly SIP in the fund since its inception has given a total of Rs 2,04,98,483.
A Rs 3,000 monthly SIP in the fund since its inception has given Rs 3,07,47,724.
Content Source: www.zeebiz.com