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Business News/ Mutual Funds / Magic of compounding: Investing 1 lakh in this mutual fund at launch would have grown to 30 lakh now
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Magic of compounding: Investing ₹1 lakh in this mutual fund at launch would have grown to ₹30 lakh now

Sundaram Multi cap mutual fund grew at a CAGR of 15.6 percent per annum since its inception on Oct 25, 2000, thus enabling an investment of ₹one lakh to swell to ₹30 lakh

A multi cap mutual fund is a scheme which invests a minimum of 75 percent of assets in equity & equity-related instruments Premium
A multi cap mutual fund is a scheme which invests a minimum of 75 percent of assets in equity & equity-related instruments

When an investment is made in an equity mutual fund scheme, the sum — if remains invested for a long tenure — is likely to grow multi-fold.

The later you redeem the investment, the higher would be the return. The rationale which works behind this is also known as the ‘magic of compounding’ which implies that the returns in the earlier years are added to the principal, thus letting the initial investment grow swifter in the latter years.

In order to elucidate the benefits of compounding, we handpick one mutual fund scheme to show how its returns have grown multi-fold since its inception.

The scheme we are talking about is ‘Sundaram Multi Cap Fund’ which was launched on October 25, 2000.

For the uninitiated, a multi cap mutual fund refers to a scheme which invests a minimum of 75 percent in equity and equity-related instruments. They are also referred to as ‘diversified equity funds’ since they invest across stocks of different sectors and segments of the market.

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Returns given by Sundaram Multi Cap Fund

Tenure      Return (%)  one lakh grows to (Rs)
1 year                          39.61.39 lakh
3 years                     19.51.7 lakh
5 years                      162.1 lakh
10 years                    16.34.52 lakh
Since launch in Oct 2000              15.630 lakh

(Source: sundarammutual.com; Returns as on March 31, 2024)

As one can see in the table above, the scheme has given a return of 39.6 percent in the past one year, thus letting an investment of one lakh to grow to 1.39 lakh. And if someone had invested one lakh three years ago, an investment of one lakh would have grown to 1.7 lakh.

Likewise, this one lakh investment would have swelled to 2.1 lakh in five years after giving a return of 16 percent.

And if an investor had made an investment of one lakh a decade ago, the investment would have grown to 4.52 lakh.

The scheme was made open to the general public in Oct 2000, and if someone had invested one lakh 23 years and six months ago i.e., at the time of launch, the investment would have grown 30 times.

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In other words, an investment of one lakh — by growing at an annualised rate of 15.6 percent — would have swelled to 30 lakh.

However, investors must reckon that the historical returns of a mutual fund do not guarantee its future returns. So, if a scheme has delivered handsome returns in the past, it may or may not continue to perform at the same pace in future.

More about the scheme

Sundaram Multi cap Fund has an average AUM (assets under management) of 2,374 crore. The fund is managed by two fund managers: Sudhir Kedia and Ratish B Varier. The scheme is overweight on consumer durables, industrial products and finance. The key constituent stocks are RIL, ICICI Bank, HDFC Bank and Axis Bank.

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Sector-wise, the key constituent sectors are banks (14.7%), finance (9.4%), consumer durables (8.5%), industrial products (7.8%) and auto components (6.3%).

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: 16 May 2024, 09:40 AM IST
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