The magic of compounding: ₹10K monthly SIP in mutual fund grows to ₹1.76 crore

HSBC Midcap Fund, launched on August 9, 2004, with an AUM of ₹10,739 crore and benchmarked against the NIFTY Midcap 150 TRI, showcases the remarkable power of compounding in wealth creation. Often described as 'magic', compounding significantly boosts long-term investment returns.

The key to wealth creation isn't merely picking the right stocks but also investing in diversified mutual funds that minimize risk. However, the real game-changer is compounding, where investments grow exponentially over time.

Warren Buffett aptly highlighted this with his famous quote, “You can't produce a baby in one month by getting nine women pregnant,” emphasizing the importance of time in investments.

To illustrate the benefits of compounding, let's consider the HSBC Midcap Fund. Assuming an investor consistently invested ₹10,000 monthly via SIP:

1 year: An investment of ₹1.2 lakh grew to ₹1.55 lakh, a return of 58.71%.

3 years: An investment of ₹3.6 lakh grew to ₹5.52 lakh, a return of 29.95%.

5 years: An investment of ₹6 lakh grew to ₹11.58 lakh, a return of 26.69%.

10 years: An investment of ₹12 lakh grew to ₹28.85 lakh, a return of 16.95%.

Since inception: An investment of ₹23.6 lakh grew to ₹1.76 crore, a return of 17.76%.

(Source: HSBC Mutual Fund The Asset, April 2024)

These figures demonstrate the substantial growth achieved through regular investments and the power of compounding over time. For instance, a 10-year investment resulted in a portfolio worth ₹28.85 lakh from a total investment of ₹12 lakh. Similarly, a sustained investment since the fund's inception led to a portfolio worth ₹1.76 crore from a total investment of ₹23.6 lakh.

Compounding rewards patience and long-term commitment, proving that time in the market is more crucial than timing the market.