Magic of compounding: Investing ₹1 lakh in this mutual fund at launch would have swelled to ₹4.76 lakh

Examining the past returns of a mutual fund scheme is vital to get an idea of how the scheme has delivered in the recent past.

It also gives a fair idea of how much the investment would have swelled over a period of time. Let us suppose, if someone told you that your investment of ₹one lakh would have grown over 4 times in 10 years by investing in a mutual fund scheme, you may not believe initially. But it is true.

The rationale that works behind is the magic of compounding. This means when you remain invested in a particular investment over a long period of time, the investment grows multi-fold. The compounding is so powerful that it is euphemistically referred to as ‘magic’.

However, there is no magic in the true sense of the word, it is pure mathematics. The returns earned in the initial years keep adding to the corpus, thus making it grow at a faster pace in later years.

We handpick one mutual fund scheme – DSP Focus Fund – to demonstrate the magic of compounding by showing the returns it posted in the past 10 years.

(Source: dspim.com), (#Returns calculated till May 31)

(*10-year-returns calculated till June 28)

If an investor had invested ₹1,00,000 a year ago, the investment would have grown to ₹1.37 lakh by now.

And if investment of ₹one lakh were made three years ago, it would have grown to ₹1.52 lakh by growing at an annualised rate of 15.12 per cent. Likewise, if someone had made an investment five years ago, the sum would have grown to ₹1.99 lakh upon growing at a CAGR of 14.85 percent.

Likewise, an investment made 10 years ago in DSP Focus Fund would have become ₹4.31 lakh by growing at an annual rate of 15.73 per cent.

And if an investor had made an investment of ₹one lakh at the time of inception i.e., 13 years ago, it would have grown at an annualised rate of 11.80 per cent to become ₹4.76 lakh.

DSP Focus Fund: Key details

It is an open-ended equity scheme which invests in a maximum of 30 stocks. The scheme — launched on June 10, 2010 — focuses on multi cap stocks.

The scheme’s asset size is ₹2,338 crore, and its benchmark index is Nifty500 TRI. The fund managers of this scheme are Vinit Sambre, Bhavin Gandhi and Jay Kothari.

Key constituent stocks are Bajaj Finance, Kirloskar Oil Engines, ICICI Bank, HDFC Bank and Polycab India.

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