Magic of compounding: ₹1 lakh invested in this mutual fund at the launch would have grown to ₹70 lakh

Before you decide to invest in a mutual fund scheme, it is advisable to monitor its performance over a long period of time, say since the scheme was launched.

And remember when the money remains invested in a mutual fund scheme over a period of time, the returns in the later years are disproportionately higher than the ones in the first few years.

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Consequently, the total investment grows multi-folds over a long stretch of time. This is known as the compounding of returns.

Here we demonstrate the magic of compounding by showing the returns given by a mutual fund scheme i.e., ICICI Prudential Multi Asset Fund.

Tenure             Return (%)  1 lakh becomes (Rs)
1 year                   29.74  1,29,830
3 year                 23.37 1,87,980
5 year                21.63 2,66,430
10 years          15.09 4,07,733
Inception              21.56 70,02,150

(Source:icicipruamc.com, returns as on Aug 16, 2024)

As one can see in the table above, if someone had invested one lakh in this mutual fund scheme, it would have swelled to 1.29 lakh, thus delivering a return of 29.74 percent.

And if the investment of one lakh had remained invested in the scheme for 3 years, it would have grown to 1.87 lakh.

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In five years, the investment of one lakh would have spiked to 2.66 lakh, thus giving the return of 21.63 per cent.

Over a decade, an investment of one lakh would have grown to 4.07 lakh. And if someone had made an investment of one lakh at the time of mutual fund’s launch i.e., on Oct 31, 2002, the investment would have grown to a whopping 70 lakh, thus giving a return of 21.56 per cent.

Other details

It is an open-ended scheme launched on Oct 31, 2002 that invests in equity, debt and exchange traded commodity derivatives/units of Gold ETFs/units of Silver ETFs/units of REITs & InvITs/Preference shares.

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The scheme’s assets under management (AUM) amount to 46,488 crore, as per icicipruamc.com.

The scheme’s key constituent stocks include ICICI Bank (4.95%), HDFC Bank (4.61%), NTPC (4.2%), Maruti Suzuki (3.84%), RIL (3.03%), Infosys (2.46%), SBI Cards (2.42%), Bajaj Finserv (2.3%) and Sun Pharma (2.29%).

The scheme’s fund managers are Manish Banthia, Sankaran Naren, Ihab Dalwai, Sri Sharma, Gaurav Chikane and Akhil Kakkar.

Meanwhile, it is vital to remember that the historical returns of a mutual fund scheme do not stand testimony to the returns in future. In other words, the past performance of a scheme does not guarantee its future performance.

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So, it is important that investors judge a scheme’s potential based on an interplay of several factors such as the category it belongs to, reputation of fund house, past performance of fund managers and importantly the macro-economic factors.

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

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