How does one get the benefits of compounding in mutual fund investments?
28 May 2021
Do we need to do anything extra to get benefit of compounding? So I have a monthly SIP of Rs 5,000 for 10 years so do I have to do anything extra or after 10 years I’ll get the benefits of compounding by default?
—- Sanket Kandolkar
Answered by Shifali Satsangee, Founder, Funds Ve’daa, a mutual fund advisory firm, based in Agra:
The power of compounding is considered the eighth wonder of the world. To get additional benefits you could step up or top up your SIP every year by a certain percentage, say 10%, or a certain amount ( whatever you are comfortable with).
To give an example,
If you do a monthly SIP of Rs 5,000 for 10 years, your corpus at the end of 10 years would be approximately Rs 10 lakh assuming a 10% CAGR.
If you do a monthly SIP of Rs 5,000 for 10 years and top it up by even a Rs.1,000 every year, your corpus at the end of 10 years would be approximately 17.5 lacs assuming a 10% CAGR.
This would give you a fair idea of the benefits that accrue along with the power of compounding just by stepping up your SIPs every year.