When you make a small investment at a regular pace for a long period of time, the investment can, and does, grow to a considerably large amount. As the time rolls on, the fund increases at a pace faster than during the earlier part. This happens because of the magic of compounding.
Investment advisers often say that investors should invest small sums on a regular basis to accumulate a large amount to meet their financial goals via SIPs (systematic investment plans).
In other words, the magic of compounding makes handling of investment a simple affair. The Oracle of Omaha Warren Buffett also said that investing is a ‘simple game’ that financial advisors have turned ‘harder’ than it actually is.
|Tenor (years)||Return (%)||Accumulated sum (Rs)||Increase (Rs)|
(Based on an SIP of ₹11,000 per month)
As we can see in the table above, investing a regular sum of ₹11,000 in a mutual fund that is giving the return of 14.57 percent would accumulate ₹9,74,649 after five years.
The same investment when continued for another five years would increase to ₹29,85,252, showing an increase of ₹20.11 lakh.
In another 4.5 years, the investment rises to ₹65,70,627, thus showing an increase of ₹35.85 lakh.
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In other words, by investing the same amount of money, the increase in investment grows at a faster pace as the time rolls on.
In the last four-and-a-half years, the increase was faster than that witnessed in the first five or the next five years. This is the result of compounding.
|Duration||Since inception i.e., March 2008|
So, we saw that consistency is the key to accumulating a large sum. And rather than losing hope when the market is bearish, or getting too hopeful when the market is bullish — investors are advised to stay committed to their investment discipline.
About the scheme: The ABSL Pure Value Fund was launched in March 2008. The scheme's fund manager is Kunal Sangoi. The minimum investment in the scheme is ₹1,000.
The top 10 holdings in the scheme are SBI, ABSL MF, Divi's Labs, Ramkrishna Forgings, IndusInd Bank, ICICI Bank, Poonawalla Fincorp, Bandhan Bank, UPL and SBI Life Insurance Corp.
The maximum sectoral allocation has been made to banks, finance, pharma, mutual fund, industrial products, chemicals, aerospace and defence.
(Note: This story is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment related decision.)