The magic of compounding must be seen to believe it. Albert Einstein once famously said, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” The legendary investor Warren Buffett, also known as the Oracle of Omaha, has — time and again — emphasised the significance of compounding.
The rationale is simple: The pace at which investment gives returns quickens on account of wealth accumulation in the first few years. In other words, if you make small doses of investment in a scheme over a long period of time, the returns stand to grow multi-fold over the later part of the scheme’s tenure vis-à-vis the beginning.
Here, we uncover this phenomenon empirically and demonstrate how a small SIP (systematic investment plan) of ₹12,000 in a high-performing mutual fund would have grown to ₹1.07 crore if one had invested regularly since its inception.
HDFC Mid-Cap Opportunities Fund was launched on June 25, 2007 and has given a compound annual growth rate (CAGR) return of 16.19 percent since inception (as on May 30).
| Tenure | Investment (Rs) | Wealth Generation (Rs) | Increase (Rs) |
| 5 years | 7,20,000 | 11,12,967 | 3,92,967 |
| 10 years | 14,40,000 | 36,00,066 | 21,60,066 |
| 15 years 11 months | 22,92,000 | 1,07,55,664 | 84,63,664 |
(Source: hdfcfund.com; Calculation based on 16.19% CAGR since inception)
As we can see in the table above, if you make an SIP of ₹12,000 for five years in this mutual fund, the total investment would have been ₹7,20,000. Assuming the CAGR return of 16.19 percent (which the scheme has delivered since inception), the total wealth generation in the first 5 years would have been ₹11,12,967.
Going forward, if someone happens to invest for a period of 10 years, the total investment of ₹14,40,000 would have swelled to ₹36 lakh by investing in this scheme.
Overall, a monthly investment of ₹12,000 made consistently during the fund’s tenure would have enabled an investor to accumulate ₹1.07 crore by investing a total of ₹22.92 lakh in 15 years and 11 months.
Here we share more details of the scheme:
HDFC Mid-Cap Opportunities Fund: This mid-cap equity scheme was launched in June 2007, and is managed by Chirag Setalvad.
The fund’s benchmark is Nifty midcap 150 index (total returns index).
As of Mar 2023, the scheme allocated 69.1 percent of its assets to mid-cap securities, 14.5 percent to small cap and 10.7 percent to large cap securities. Its total assets under management (AUMs) are ₹35,172.92 crore.
Its top 10 equity holdings (as on Mar 31, 2023) are Indian Hotels Company, Hindustan Aeronautics, Cholamandalam Investment & Finance Co Ltd, Max Healthcare Institute, Bharat Electronics, Sundram Fasteners, Tata Communications, Apollo Tyres, Balkrishna Industries and Indian Bank.
