How compounding impacts your long term investment

Irrespective of the investment option chosen by the investor, late investment leads to loss in compounding benefits as return on return becomes lower. (iStock) — Irrespective of the investment option chosen by the investor, late investment leads to loss in compounding benefits as return on return becomes lower. **(iStock)**

2 min read . Updated: 22 Apr 2021, 02:31 PM IST Asit Manohar

Compounding has a big role in long-term investment as one gets benefit of return on return compounded in one's corpus

Being known to one's investment goal helps an investor maximise return on one's money. It helps choosing right fund during the portfolio allocation as well. However, it is always advisable to start investment as early as possible because it enables an investor to get compounding benefit. Irrespective of the investment option chosen by the investor, late investment leads to loss in compounding benefits as return on return becomes lower. That's why longer is the investment higher is the compounding benefit and more chances for the investor to meet once investment goal.

Speaking on how the compounding impacts long-term investment Pankaj Mathpal, Founder & CEO at Optima Money Managers said, "Compounding has a big role in long-term investment as one gets benefit of return on return compounded in one's corpus. That's why, if the investment period is long, the investment amount gets lowered by huge margin. If an investor invests in mutual fund or any other investment instrument, small change in time leads to huge rise in the investment amount, and sometimes it leads to miss one's investment goal as well because one can’t allocate that much of fund to create the corpus that the investor has set as its long-term goal."

Pfizer in talks with India to supply covid vaccines

1 min read . 02:16 PM IST

Healthcare workers inside emergency ward at a covid care centre in Delhi

Premium

India surpasses US to report world's largest single-day tally of covid cases

1 min read . 10:20 AM IST

On Wednesday, Maharashtra recorded 67,468 new Covid-19 cases and 568 deaths.

Premium

New lockdown-like restrictions in Maharashtra from today as Covid-19 cases soar

1 min read . 07:16 AM IST

Sharing how compounding impacts an investor's long-term investment Kartik Jhaveri, Director — Wealth Management at Transcend Consultants said, "In mutual fund if a per son wants to grow ₹2 crore in 20 years, its monthly SIP will be around ₹20,000 (SBI Mutual Fund Calculator says ₹20,017.056). However, if the investor is retiring after 15 years and want to create ₹2 crore fund in this period, one's monthly SIP will be around ₹39,500 (SBI Mutual Fund calculator says exact ₹39,637.240), which is almost double of the monthly investment."

According to SBI Mutual Fund SIP Calculator, if an investor wants to accumulate ₹2 crore in 20 years, then assuming 12 per cent return in equity mutual fund one will have to do ₹20,017.056 monthly SIP.

However, if the investor fails to do that in first five years and starts investing before 15 years of one's retirement with same ₹2 crore investment goal, the SBI Mutual Fund SIP calculator says that the investor will have to make an SIP of ₹39,637.240 per month.

Jhaveri advised investors to know the importance of saving from the early phase of one's career and avail maximum benefit of compounding benefit.

Subscribe to Mint Newsletters

* Enter a valid email

* Thank you for subscribing to our newsletter.

Click here to read the Mint ePaperMint is now on Telegram. Join Mint channel in your Telegram and stay updated with the latest business news.