What is power of compounding in the Indian mutual fund market?

The power of compounding is a fundamental concept in the Indian mutual fund market, as it is in all types of investments. Compounding is the process by which an investment generates earnings, which are then reinvested to generate even more earnings. Over time, this can lead to significant growth in the value of an investment.

In the Indian mutual fund market, compounding works in the following way: when you invest in a mutual fund scheme, you earn returns on your investment. If you reinvest those returns back into the same mutual fund scheme, you will earn returns not only on your original investment but also on the returns generated by the scheme. This is known as compounding.

The power of compounding can be significant over the long term. For example, if you invest Rs. 10,000 in a mutual fund scheme with an average annual return of 10%, and you reinvest your returns for 20 years, your investment will grow to approximately Rs. 67,275. However, if you invest the same amount for 30 years, your investment will grow to approximately Rs. 1,74,494. This is because the longer you stay invested and reinvest your returns, the more your money will grow.

Therefore, it is important to start investing early in the Indian mutual fund market and to stay invested for the long term in order to benefit from the power of compounding. It is also important to choose mutual fund schemes that have a good track record of generating returns and to diversify your investments across different asset classes and mutual fund categories to manage risk.