Magic of compounding: Investing ₹1 lakh in these three mutual funds would have become ₹5 lakh in 10 years

Before investing in a mutual fund, investors tend to weigh a number of pros and cons. These include the reputation of the fund manager, category of mutual fund scheme, macro-economic factors and importantly – the historical returns of the scheme.

Although wealth managers — time and again — assert that the past returns are no guarantee for the scheme's future returns, these are still given disproportionately greater importance by retail investors.

Here, we zero in on three mutual funds which have given such high returns that the money would have swelled five times in the past decade or so. This could happen as a result of the magic of compounding. The great scientist Albert Einstein called compounding ‘the eighth wonder of the world’.

Nippon Focused Equity Fund delivered 19.41 percent return in the past 10 years, Quant Focused Fund gave 18.50 percent in the past one decade, and SBI Focused Equity Fund delivered 17.46 percent during the same time.

This clearly means that if someone had invested ₹one lakh in this scheme 10 years ago, the investment would have swelled to more than ₹5 lakh in each of these three schemes.

Let us explore more on this:

Nippon India Focused Equity Fund

As one can see from the table above, the scheme’s three-year-return was 27.15 percent, giving a return of ₹2.05 lakh.

This means if someone had invested ₹1 lakh in this fund three years ago, it would have given ₹2.05 lakh. In five years, the investment of ₹1 lakh would have grown to ₹2.17 lakh. And in ten years’ time, the sum would have swelled to ₹5.89 lakh.

Quant Focused Fund

The Quant Focused Mutual Fund has given a return of 18.50 percent in the past 10 years. This means if someone had invested ₹one lakh a decade ago, it would have grown to ₹5.45 lakh by now. In three years, the sum would have grown to ₹1.93 lakh and in five years, it would have been ₹2.11 lakh, shows the AMFI data as on Oct 30, 2023.

SBI Focused Equity Fund

(Source: AMFI; data as on Oct 30, 2023)

Likewise, if someone had invested ₹one lakh in this scheme three years ago, the investment would have grown to ₹1.75 lakh. In five years’ time, the investment would have grown to ₹2.09 lakh and in ten years’ time, the investment would have swelled to ₹4.99 lakh.

So, there is no denying the fact that compounding of returns is a phenomenal concept and no wonder then it is referred to as ‘magic’.