Mutual Funds: Investing ₹one lakh in this scheme at inception would have grown 8 times in 20 years

Prior to investing in a mutual fund scheme, investors tend to examine the returns which the scheme has delivered in the recent past. It is also recommended to check the returns delivered since the launch of the scheme.

When some money stays invested for a long period of time, the investment is likely to grow multi-fold, particularly during the later period of the tenure. The returns delivered in the first few years are appended to the principal, which collectively rises in the later years.

This leads to disproportionately higher rise in the later years vis-à-vis earlier years, and is referred to as ‘compounding’.

To demonstrate the power of compounding, we handpick one mutual fund scheme — Tata Equity PE Fund — and examine the returns it delivered in the recent past.

Let us suppose, an investor had invested ₹one lakh in this scheme a year ago. The investment would have grown to ₹1.52 lakh now, exhibiting a 52.02 per cent growth.

In a three year’s tenure, ₹one lakh investment would have swelled to ₹2.11 lakh by growing at 28.25 percent.

Likewise, if an investor had invested this sum five years ago, it would have grown to ₹3.06 lakh by growing at an annualised rate of 25.08 per cent.

In a 10-year period, the investment of ₹one lakh would have swelled to ₹5.04 lakh by growing at a CAGR (compound annual growth rate ) of 17.56 percent.

(Source: AMFI; returns as on July 31, 2024)

Meanwhile, if the investor happened to invest soon after the scheme’s launch (i.e., June 29, 2004), the investment would have grown eight times to ₹8.09 lakh by growing at an annualised rate of 19.79 percent, shows the details on Tata Mutual Fund’s official portal.

More about the scheme

Tata Equity PE Fund sticks to the value conscious style of investing. It aims to invest a minimum of 70 percent in equity and equity-related instruments of companies whose rolling P/E is lower than rolling P/E of S&P BSE Sensex.

The fund uses several other qualitative and quantitative screens to buy companies in a bid to buy good stocks at cheap valuations.

The top 10 constituent stocks are HDFC Bank, BPCL, Kotak Mahindra Bank, Coal India, NTPC, ITC, Indus Towers, Wipro, ICICI Bank and PFC as on July 31, 2024, reveals the data on Tatamutualfund.com.

The monthly average assets under management (AUM) amount to ₹8,652.10 crore. The scheme’s fund managers are Sonam Udaisi and Amey Sathe.

It is, however, vital to remember that the historical returns of a mutual fund scheme do not guarantee its future returns. Put simply, the returns delivered in the past may or may not continue in the near future.

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