Why is power of compounding powerful? Simply because this strategy allows the interest earned to also earn interest leading to a growth in the value of investment. Using this strategy, the investments works hard for you. Therefore, it is a powerful tool used in the world of investments, which helps achieve your future goals.
Now it’s not uncommon to have questions in your mind regarding where should you invest? How do you start? How much should you invest? The answer is simple, start your investments in mutual funds.
With each succeeding year, the returns will get added to the principal. Power of compounding is nothing but exponential growth for your corpus.
Example for the Power of compounding : if you had invested Rs 1 lakh in 2010 investment growing at an assumed rate of 10% annually compounded, after 11 years in 2021, the investment corpus was Rs 19.28 lakhs( Returns are net of total expenses and are calculated on the basis of Compounded Annualized Growth Rate (CAGR).The above example is to explain the concept of power of compounding and is given for illustration and explanatory purposes only
Make the best use of this tool – the power of compounding in three 3 easy ways
- Start early – Longer the investment horizon, the better
as mentioned earlier, your investment and corpus size keeps growing with the help of power of compounding. SIP mutual funds are a convenient way to use this power of compounding. The key is to start investing early and stay invested for a longer tenure to leverage the power of compounding. This will help you to gather a retirement corpus.
- Choose wisely – Seek optimum return on investment
Ensure to choose your mutual funds wisely before making an investment. You can also use the power of compounding calculator to understand your desired objectives. If you invest in any Equity or debt mutual fund schemes, you can benefit from the power of compounding. Mutual fund schemes and objectives have various categories and goals. Accordingly corroborate the target and required corpus.
- Invest judiciously and regularly
It is evident that if you invest a higher amount, you potentially to have a larger sum of investments at the end of your time horizon subject to market risk. However, the sentiments are different because investments are sometimes random and unplanned. So, the investment size does not grow. This can be changed by investing timely and regularly. Therefore, the Power of compounding can be utilized and optimized with the factor of regular and disciplined investing. Thus, it is essential to invest in mutual funds systematically.
In a nutshell, long-term investment strategy is best utilized with the power of compounding in SIP. The Power of compounding is a useful and powerful tool that is also subject to market risk and conditions. Investors may seek the help of an investment advisor and gather maximum knowledge before investing.
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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.