Mutual fund compounding enables investors to earn interest on their investments and reinvest the proceeds, earning further interest over time.
Mutual fund SIPs (Systematic Investment Plans) are an effective technique for long-term wealth growth that takes advantage of compounding. SIPs allow investors to put a predetermined amount into mutual funds regularly, usually monthly, allowing for more disciplined and long-term investing.
Investors can use a mutual fund calculator to select appropriate funds and monitor their investments, maximising their financial progress.
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What Is Compounding Impact?
Compounding is a technique in which an investment yields returns not just on the principal amount but also on the accrued interest. This reinvestment of revenues increases the investment’s growth, allowing investors to gain returns on their investment over time.
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How a Rs 1,000 SIP can grow into Rs 1.2 crore in 40 years.
If you begin investing Rs 1,000 at the age of 20, Rs 3,000 at the age of 30, and Rs 4,000 at the age of 40, you will be a crorepati by the age of 60.
Let’s consider this calculation: a SIP of Rs 1,000 per month in a mutual fund plan with contributions for 40 years and an annualised return of 12 per cent can result in a corpus of Rs 1.19 crore. If you increase this monthly SIP by 10 per cent each year, your corpus might grow to Rs 3.5 crore – this is the power of compounding.
If you invest Rs 3,000 in SIP and reduce the term to 30 years while maintaining the same annualised return, the total corpus is Rs 1.05 crore. If the SIP amount is increased by 10 per cent per year, the total corpus will be Rs 2.65 crore.
In the final scenario, if you start your SIP at the age of 40 and contribute for 20 years with an annualised return of 12 per cent, you can accumulate a corpus of Rs 40 lakh. If this contribution is increased by 10 per cent year, the corpus will be around Rs 80 lakh.
