The advantages of compounding are so profound that it is considered not less than a magic. From ace investors such as Warren Buffett to the great scientist Albert Einstein have spoken at great lengths about the power of compounding.
Einstein even referred to compounding as the ‘eighth wonder’ of the world.
Here, we hand pick a small case study of a randomly selected value mutual fund and discern how an investment of ₹one lakh would have fared if it were locked into the fund and allowed to grow year after year.
For the unversed, a value fund refers to a mutual fund that follows a value investment strategy with a minimum of 65 percent investment made in equity.
Nippon India Value Fund is one such value fund that was launched on June 8, 2005. Since then, the scheme has delivered a fairly good return (see table below).
So, if someone had invested ₹one lakh in Nippon India Value Fund, the investment would have grown by 16 times (i.e., to ₹16 lakh) in a span of 18 years until Nov 30, 2023.
About the fund
The scheme has given a return of 25.53 percent in the past one year, 26.6 percent in the past three years and 18.72 percent in the past five years.
And if someone had made an investment of ₹one lakh in this scheme, the investment would have grown to ₹1.25 lakh after one year, ₹2 lakh after 3 years and 2.36 lakh after 5 years based on the returns mentioned above.
| Years | Return (%) | Return (Rs) on ₹one lakh |
| 1 | 25.53 | 1,25,530 |
| 3 | 26.60 | 2,03,280 |
| 5 | 18.72 | 2,35,940 |
| Since Inception | 16.39 | 16,55,300 |
(Source: Nippon India)
And had someone made this investment at the time of inception, the sum would have grown by 16 times.
It is interesting to note that if the same investment were made in Nifty 500, it would have grown to 12 lakh.
The top 10 constituent stocks of this fund are HDFC Bank, ICICI Bank, Infosys, Angel One, L&T, PFC, NTPC, Bharti Airtel, RIL and Max Financial Services.
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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Published: 29 Dec 2023, 12:56 PM IST