Compounding: Investing ₹6,000 a month since inception in this mutual fund would have grown to ₹1.1 crore in 20 years

When you invest in a mutual fund scheme, the returns keep getting added to the corpus, thus letting it grow faster in the later years vis-a-vis initial years. The overall corpus, therefore, jumps at a rate faster than it did in the first few years. The faster pace of growth of a scheme’s AUM in the later years is also known as ‘compounding’.

This is so potent a tool of investing that it is also referred to as ‘magic’ by some of its proponents. In other words, if you stay invested in a stock or mutual fund scheme over a long period of time, the returns keep piling up, thus indicating a considerable jump over a long period of time.

Here, we handpick one mutual fund scheme to demonstrate the power of compounding. We share details of Tata Equity PE Fund which is a value mutual fund launched on June 29, 2004.

What is a value fund?

Value mutual fund is a scheme that follows a value investment strategy with at least 65 percent in the stocks. Value funds identify stocks that are currently undervalued but are expected to perform well over time as the value is unlocked, as per the definition given by the Sebi.

If someone had invested ₹6,000 via SIPs (systematic investment plan) every month in this mutual fund scheme over a period of time, the returns would have been quite impressive. As the table below reveals, an investment of ₹6,000 in Tata Equity PE fund grows to ₹77,722 in a span of one year while the total investment stands at ₹72,000.

(Source: tatamutualfund.com/tools-and-calculators/sip-past-performance)

In a span of three years, this investment would have grown to ₹3,21,022 by making an investment of ₹2,16,000. Moving on, if you had continued your SIP over a period of five years, the investment would have grown to ₹6.7 lakh while you shelled out only ₹3.6 lakh. 

In a 10-year period, this investment would have grown to ₹15.85 lakh merely by investing ₹7.20 lakh over a decade.

Likewise, if you were regular in investing ₹6,000 via SIPs since the inception, the investment would have grown to ₹1.10 crore by investing only ₹14.70 lakh.

More about the scheme

Its key constituent stocks are HDFC Bank, BPCL, Coal India, Kotak Mahindra Bank, Wipro, Radico Khaitan, ITC, NTPC and ICICI Bank. It has an AUM of ₹8,738 crore and has delivered a CAGR of 19.12 percent since launch. The fund has an exit load of 1.00% and an expense ratio of 1.78%. 

The minimum investment in Tata Equity P/E Fund Regular Growth is ₹5,000 and the minimum SIP is ₹100.

Note: This story is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment related decision.