Magic of compounding: By investing ₹10K a month into this scheme, you

# Magic of compounding: By investing ₹10K a month into this scheme, you would have accumulated ₹10 crore

Updated: 17 Jul 2023, 10:44 AM IST
TL;DR.

## Franklin India Flexi Cap Fund was launched on Sep 29, 1994 and has delivered an annualised return of 17.69 percent since launch

The compound interest has been touted as the eighth wonder of the world.

Investors tend to assess a mutual fund scheme’s worth on the basis of its past returns. It is advisable, however, to judge it on the basis of its long-term performance and not short term.

Here we take a look at one flexi cap mutual fund and assess its performance since its inception in 1994. We also calculate the hypothetical returns which the scheme would have generated if an imaginary investor were investing into it via a monthly SIP (systematic investment plan) of 10,000 since its inception.

## Franklin India Flexi Cap Fund

Franklin India Flexi Cap Fund was launched on Sep 29, 1994 and it has delivered an annualised return of 17.69 percent since inception, shows the AMFI (Association of Mutual Funds in India) data as on July 13.

A simple calculation of compounded returns shows that if an investor were regular in investing into this scheme, the accumulated returns would have grown to a whopping 10 crore.

Let us understand how this happens:

 Particulars In 5 years In 10 years In 20 years Since inception Investment (SIP of ₹10K) 6 lakh 12 lakh 24 lakh 34.5 lakh Returns (Rs) 9,67,949 32,97,106 2,23,85,887 10,65,75,691 Difference (Rs) 3,67,949 20,97,016 1,99,85,887 10,31,25,691

(Assuming the annualised return was seen in these time frames)

As one can see from the table above that by investing a total sum of 6 lakh over five years, one can accumulate 9.67 lakh since the scheme delivers an annualised return of 17.69 percent.

In 10 years, the accumulated savings increase further and one would have saved 32.97 lakh by investing 10,000 every month over a period of 10 years.

Moving further, a regular investment of 10,000 would have swelled to a whopping 2.23 crore in 20 years while the total investment is a paltry 24 lakh.

And in the total tenure of 28 years and 9 months, i.e., since inception, a regular investment of 10,000 would have grown to a massive corpus of 10 crore assuming the annualised rate of return is still 17.69 percent.

So, we cannot stop ourselves from stating that one must invest on a regular basis — regardless of market cycle — since regular investment gives the advantage of compounding. The great scientist Albert Einstein once called compound interest the eighth wonder of the world.

Magic of compounding in mutual funds explained
First Published: 17 Jul 2023, 10:44 AM IST