Mutual Fund returns: Investment in this mid cap scheme grew 8 times in 10 years

The power of compounding is so strong that it is also referred to as magic. From the doyen of investing Benjamin Graham to the Oracle of Omaha Warren Buffett — all have acknowledged and lauded the power of compounding.

The rationale behind this ‘magic’ is simple. If you keep your money invested for a long period, the return keeps getting added to the investment, and in the subsequent years, the return appreciates on the inflated sum.

And when this cycle proceeds for a few years in a row, the total return grows significantly over the original sum invested.

We demonstrate the power of compounding with the help of an illustration here.

HDFC Mid Cap opportunities Fund has given high return in the past few years. This is, in fact, quite typical of a midcap mutual fund. For the uninitiated, mid cap mutual fund refers to a scheme which invests a minimum of 65 percent in mid-cap stocks.

The mid cap stocks refer to securities of companies which fall in the range of 101-249 when ranked on the basis of market capitalisation.

High returns delivered

In the past one year, this scheme has given a high return of 58 percent. This means if someone had invested ₹one lakh a year ago, it would have grown to ₹1.58 lakh.

Likewise, this mutual fund has delivered a return of 30.14 per cent. In other words, if someone had invested ₹one lakh three years ago, it would have grown to ₹2.2 lakh.

(Source: www.hdfcfund.com)

In the past five years, this mid cap fund has given a return of 26.05 percent, thereby enabling an investment of ₹one lakh to grow to ₹3.19 lakh.

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Similarly, in the past 10 years, the scheme has given an annualised return of 23.22 percent. In other words, if someone had invested ₹one lakh 10 years ago, it would have grown to ₹8 lakh by now.

However, it vital to mention here that historical returns are no guarantee of a scheme’s future returns and before deciding to invest, investors are expected to exercise caution and consider a slew of other factors such as the macro-economic scenario, category of scheme,0 reputation of fund house and importantly the risk appetite of investor.

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