Wealth explosion: Dominate with the power of compounding 

Working With a Compound Interest Calculator -

The average AUM (Assets Under Management) of the Indian mutual fund industry rose to ₹54,52,487 crore in February 2024. Several Indians leverage the power of compounding to earn high returns from their mutual fund investments. Read on to know more about the power of compounding and how deploying it in your investments can help you benefit from a wealth explosion.

What is compounding, and how can it help investors exponentially grow their returns?

Compounding occurs when the initial interest earned from an investment scheme is added to the investment amount. When this new investment amount is reinvested in the scheme, it generates a chain reaction where the investor earns returns on returns. This potential of compounding is called the power of compounding, and it helps several investors make the most of their mutual fund investments. 

Benefits of the power of compounding:

Here are the key benefits of the power of compounding:

  • The power of compounding results in wealth explosion: Investors can leverage the power of compounding to exponentially grow their funds in the long term. 
  • Investors can benefit from faster growth: Investors can grow their wealth faster by reinvesting their earnings. Compounding, therefore, helps them benefit from faster growth.
  • The power of compounding can be executed for any financial instrument: Investors can improve the returns offered by any financial instrument through the power of compounding. 
  • Anyone can benefit from the power of compounding: An investor needs no technical expertise to benefit from the power of compounding. One only needs patience, and the discipline to invest regularly. 

How to make the most of the power of compounding?

Here are three ways to use the power of compounding to one’s advantage:

  • Investing early and using a power of compounding calculator: A compound interest calculator is a free, online tool that investors can use to calculate their compounded returns at the end of their investment tenure. Investors who start early have an edge, and their returns compound faster. One must, therefore, look to start early, and use a power of compounding calculator to estimate the returns before making an investment. Doing so can help an investor better plan their investment.  
  • Investing regularly and increasing the investment amount: The SIP (Systematic Investment Plan) mode of investment helps investors invest regularly in mutual funds and exponentially grow their wealth. Investors should keep increasing their investment amount to benefit more from the power of compounding.
  • Keeping investment biases at bay: One must always be aware of behavioural biases impacting their investment decisions like the recency bias or the confirmation bias. Investors should resist the urge of redeeming their mutual fund units early when the market enters a bearish phase. 

Using a power of compounding calculator before investing in mutual funds is important as it helps investors estimate their overall returns before taking an investment decision. These online tools also help investors decide on the right investment amount and tenure for their mutual fund investments. 

Christopher Stern

Christopher Stern is a Washington-based reporter. Chris spent many years covering tech policy as a business reporter for renowned publications. He has extensive experience covering Congress, the Federal Communications Commission, and the Federal Trade Commissions. He is a graduate of Middlebury College. Email:[email protected]

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