The power of compounding

Author : Quantum AMC | Published On : 07 May 2021

Power of compounding is nothing but when the value of an investment increases due to the interest earned on the Principal as well as accumulated interest. The power of compounding is an interesting concept and explained as you read further. The power of compounding is an effective tool to grow your investment size.

 

Why is power of compounding powerful? Simply because this strategy allows the interest earned to also earn interest leading to a growth in the value of investment. Using this strategy, the investments works hard for you. Therefore, it is a powerful tool used in the world of investments, which helps achieve your future goals.

Now it’s not uncommon to have questions in your mind regarding where should you invest? How do you start? How much should you invest? The answer is simple, start your investments in mutual funds.

With each succeeding year, the returns will get added to the principal. Power of compounding is nothing but exponential growth for your corpus.
Example for the Power of compounding : if you had invested Rs 1 lakh  in 2010 investment growing at an assumed rate of 10% annually compounded, after 11 years in 2021, the investment corpus was Rs 19.28 lakhs( Returns are net of total expenses and are calculated on the basis of Compounded Annualized Growth Rate (CAGR).The above example is to explain the concept of power of compounding and is given for illustration and explanatory purposes only 

Make the best use of this tool – the power of compounding in three 3 easy ways

  1. Start early - Longer the investment horizon, the better
    as mentioned earlier, your investment and corpus size keeps growing with the help of power of compounding. SIP mutual funds are a convenient way to use this power of compounding. The key is to start investing early and stay invested for a longer tenure to leverage the power of compounding. This will help you to gather a retirement corpus.
  2. Choose wisely - Seek optimum return on investment
    Ensure to choose your mutual funds wisely before making an investment. You can also use the power of compounding calculator to understand your desired objectives. If you invest in any Equity or debt mutual fund schemes, you can benefit from the power of compounding. Mutual fund schemes and objectives have various categories and goals. Accordingly corroborate the target and required corpus.
  3. Invest judiciously and regularly
    It is evident that if you invest a higher amount, you potentially to have a larger sum of investments at the end of your time horizon subject to market risk. However, the sentiments are different because investments are sometimes random and unplanned. So, the investment size does not grow. This can be changed by investing timely and regularly. Therefore, the Power of compounding can be utilized and optimized with the factor of regular and disciplined investing. Thus, it is essential to invest in mutual funds systematically.

In a nutshell, long-term investment strategy is best utilized with the power of compounding in SIP. The Power of compounding is a useful and powerful tool that is also subject to market risk and conditions. Investors may seek the help of an investment advisor and gather maximum knowledge before investing.

 

Disclaimer: The views expressed here in this Article / Video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The Article / Video has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of the Article / Video should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. None of the Quantum Advisors, Quantum AMC, Quantum Trustee or Quantum Mutual Fund, their Affiliates or Representative shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary losses or damages including lost profits arising in any way on account of any action taken basis the data / information / views provided in the Article / video.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.