Magic of compounding: Investing ₹1 lakh in this mutual fund at its launch would have grown to 15 lakh now

If you want your investment to grow multi-fold in the long run, one of the key things you need to do is to keep your money invested for a long period of time.

The investment tends to grow at a faster pace in the later years vis-à-vis in the initial years. This happens because the returns posted in the initial years get added to the corpus, thus helping the corpus grow further bigger with each passing year. And after a few years, the size of the investment becomes bigger and the pace of growth accelerates. This is also known as the power of compounding, and some even call it a ‘magic’.

To demonstrate the power of compounding, we handpick a mutual fund scheme — DSP mid cap fund — and examine its returns over a period of time.  For those who are not aware, mid cap funds refer to the mutual fund schemes which invest a minimum of 65 percent of their assets in mid cap stocks.

Returns delivered by DSP mid cap fund

(Source: dspim.com, AMFI; returns till Aug 30, 2024)

As one can see in the table above, if someone had invested ₹one lakh in DSP mid cap fund, it would have grown to ₹1.44 lakh in one year by growing at 44.2 percent.

In three years, this investment would have grown to ₹1.67 lakh by growing at 18.79 percent. In a five-year period, ₹one-lakh investment would have swelled to ₹2.96 lakh by growing at a rate of 24.2 percent.

Likewise, if someone had made an investment of ₹1 lakh a decade ago in this scheme, it would have grown to ₹5.16 lakh i.e., it would grown have five times.

And if someone were smart enough to put ₹one lakh in this mutual fund scheme at the time of launch, it would have grown 15 times to become ₹15.1 lakh by August 30, 2024, reveals the performance data shared on the fund house’s official portal.

More about the scheme

DSP mid cap fund was launched on Nov 14, 2006. This scheme has assets under management to the tune of ₹ ₹20,068.84 crore as on Aug 31, 2024.

The key stock holdings include Coforge. IPCA Laboratories, Bharat Forge, PFC, Coromandel International, AU Small Finance Bank and Atul Ltd. Top sectors in which this fund has invested are auto components, industrial products, IT- software, pharmaceuticals and banks.

It is an equity diversified fund with Nifty Midcap 150 TRI as its benchmark. The scheme is managed by fund managers Vinit Sambre and Abhishek Ghosh.

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