म्यूचुअल फंड कंपाउंडिंग कैसे काम करती है?

Mutual fund compounding is like earning interest on interest. When an investor invests in a mutual fund, the returns are reinvested, creating a cycle of continuous growth. Over time, this compounding effect amplifies overall investment, leading to a significant wealth effect.

Mutual fund Compounding can make you rich by leveraging time. The longer you stay invested, the better the compounding. Earnings on principal invested and also on accumulated returns.

Let’s compare returns with different effects

Investor A : Invested with compounding effect.

Investor B : Invested at a simple interest rate.

	Investor A	Investor B
Investment Value (₹)	100,000.00	100,000.00
Expected ROI	12.00%	12.00%
Tenure (in years)	10	10
Return (₹)	310,584.82	120,000.00
Total Future Value (₹)	410,584.82	220,000.00
Difference	190,584.82

Formula to calculate CAGR:

FV – Future value of investment (amount)

P– Initial investment value (principal)

r– Expected rate of interest (in decimal for eg. 0.12, if 12%)

n– no. of times investment gets compounded (say,once in a year)

t– investment horizon (in years)

For instance,

Investor invests Rs 10,000 (one time investment) for 10 years at an expected return 10% (compounded annually), future value of this investment would be-

Let’s look in a simple way

No. of years	Opening Balance (₹)	Interest accrued (₹)	Closing balance (₹)
1	10,000	1000	11,000
2	11,000	1100	12,100
3	12,100	1,210	13,310
4	13,310	1,331	14,641
5	14,641	1,464.10	16,105.10
6	16,105.10	1,610.51	17,715.61
7	17,715.61	1,771.56	19,487.17
8	19,487.17	1,948.71	21,435.88
9	21,435.88	2,143.58	23,579.47
10	23,579.47	2,357.94	25,937.42