Mutual funds: ₹1 lakh invested in this Tata scheme at inception would have grown to over ₹41 lakh now

Investing in a mutual fund is considered a prudent way of creating wealth in a consistent way. The key reason behind this is compounding which allows small investment to grow multiple times over a long period of time.

In the first few years, the return gets added to the investment and in the latter years of the fund’s tenure, the fund grows at a faster pace because of the initial incremental growth added to it.

Compounding is considered as the magic sauce of most long-term wealth generating financial instruments such as mutual funds. Here we demonstrate the power of compounding by picking up one randomly selected scheme and examine the returns it delivered over its lifetime and see how the returns grew multifold.

Tata Hybrid Equity Fund was launched on Oct 8, 1995 i.e., 28 years and five months ago. Over the fund’s tenure, the scheme has given returns at varying rates. For instance, in the past one year, the scheme delivered a return of 25.08 percent, which means if an investor had invested ₹one lakh in the scheme, it would have grown to ₹1.25 lakh.

Similarly, the scheme has given an annualised return of 15.62 percent for the 3-year period. This means if someone had invested ₹one lakh in the scheme, it would have grown to ₹1.54 lakh in a three-year period.

(Source: tatamutualfund.com) *CAGR assumed to be same as for 10 years

Likewise, if an investor had invested ₹one lakh in Tata Hybrid Equity Fund five years ago, it would have swelled to ₹2.04 lakh. The same ₹one lakh investment, in a 10-year period, would have grown 3.5 times.

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Similarly, in a 20-year period, an investment of ₹one lakh would have grown 12.3 times.

And if you were one of the few who were courageous and rich enough in October 1995 to cough up a sum of ₹one lakh, your investment would have grown over 41 times i.e., to ₹41.82 lakh.

It is, however, important to note that the past returns do not guarantee the future returns. In other words, if a fund has given exceptionally good returns so far, the same pace of return may or may not continue in future.

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