How to become rich using compounding benefit: If you want more money, then do this to build wealth
How to become rich using compounding benefit: Mutual funds are designed in such a manner that they harness the power of compounding to make investors rich.
Mutual Fund Investment: It has become virtually a custom, in those who can't afford to invest directly in equities but want to make profits that equity market gives, to invest in mutual funds. This is a better investment option for them. Due to this, Indian millennials are increasingly being attracted to it. According to the tax and investment experts, when the market goes down, mutual fund investors invest a lump sum amount in one time so that they can get maximum NAV in the lower market. Similarly, SIP has emerged better investment options among the mutual fund investors as it averages the performance of the equity markets. However, it is the power of compounding that generates great benefits as it helps mutual fund investors to average out the volatile market performance and still emerge with great profit in the long-term - say, around 5 years.
On compounding benefits that a mutual fund investor gets, Poonam Rungta, Mutual Fund expert at LJ Business School said, "Mutual funds are designed in such a manner that they harness the power of compounding. As an investor, you will make gains when the value of each unit of investment goes up. When you make investments over a long time, the benefit of compounding helps you grow your investment. This is particularly the case in mutual funds because the money that is generated in the form of capital gains is reinvested to create additional returns."
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Elaborating upon the compounding benefits investors avail, Rungta said, "You may choose to invest Rs 1,000 every month in a mutual fund for the next ten years and at a rate of 8 per cent per annum. So, you will notice that your investment of Rs 1,20,000 in 10 years gave you a return of Rs 1,82,946. Now if you choose to invest it further for say another ten years, the money now reinvested will grow even faster and give you Rs 3,94,967. This is the unique thing about compounding where the existing investment, along with the returns on this investment and the new investment each month, all contribute towards further gains."
Tags: Mutual Funds, Personal Finance
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