Magic of compounding: ₹1 lakh invested in this mutual fund scheme 28 years ago turned into ₹3.4 crore; check details

Staying invested in a mutual fund scheme over a long period of time delivers disproportionately high returns in the later years of a scheme’s tenure vis-à-vis the first few years.

This happens since the returns accrued by a mutual fund in the first few years are added to the corpus, thus enabling the scheme to deliver higher returns in the later years. The rapid pace of returns delivered by the scheme in the later years is known as the ‘power of compounding’ or magic of compounding.

Here, we handpick one mutual fund scheme — HDFC ELSS Tax Saver — to demonstrate how high returns given by one mutual fund scheme can grow significantly over a period of time.

[Source: hdfcfund.com; Regular plan (growth option) as on July 31, 2024]

As one can see in the table above, if someone had made an investment of ₹1 lakh a year ago, it would have grown to ₹1.45 lakh as on July 31, 2024, according to the data on the AMC’s website. If the same investment had been made three years ago, it would have grown to ₹2.03 lakh by growing at 26.62 per cent.

In a span of five years, the same investment would have swelled to ₹2.74 lakh. Likewise, an investment of ₹1 lakh could have grown to ₹3.86 lakh in a decade.

And if the same investment had been made at the time of the scheme’s launch on March 31, 1996, it would have grown considerably to ₹3.41 crore by now.

About the scheme

The scheme was launched on March 31, 1996. The top 10 holdings in the scheme are ICICI Bank, Axis Bank, Cipla, Bharti Airtel, HCL Technologies, HDFC Bank, Hindustan Aeronautics, State Bank of India, SBI Life Insurance and Apollo Hospitals Enterprise.

The minimum SIP is ₹500 and the scheme benchmark is Nifty 500 Total Returns Index (TRI).

The scheme's assets under management (AUM) amount to ₹16,422 crore. Roshi Jain and Dhruv Muchhal manage the scheme.