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

Before you decide to invest in a mutual fund scheme, it is recommended to compare the performance delivered by the scheme with its peers in the same category.

And when you evaluate a mutual fund scheme, it is always advisable to monitor the performance over a period of time, say since the scheme was launched.

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.

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.

(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.

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.

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.

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.