The power of compounding is so profound that it is even referred to as ‘magic’. From investment experts to Warren Buffett – almost everyone acknowledges its power.
The great scientist Albert Einstein once famously commented that compound interest is the eighth wonder of the world. More than 100 years later, this is still believed to be a timeless doctrine. The concept is simple: When you keep money invested over a long period, the pace of return on investment accelerates as the time rolls on.
When you invest a small amount and keep it invested for a long time, the compounding takes effect and the wealth grows bigger with each passing year.
Here we describe how the power of compounding — via one randomly selected mutual fund scheme — can deliver extraordinary returns over a long period of time.
DSP India TIGER fund is a thematic mutual fund which was launched on June 11, 2004 i.e., 19 years and 7 months ago. It has given an annualised return of 17.72 percent since inception, which means if someone had invested ₹1 lakh in the scheme at the time of its launch, it would have swelled to ₹24.33 lakh as on Dec 29, 2023.
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Different timelines
The scheme has given a CAGR return of 48.99 percent in the past one year. This means if someone had invested ₹one lakh in the scheme a year ago, it would have grown to ₹1,48,990.
In three years, the scheme has delivered an annualised return of 37.08 percent. In other words, if someone had invested one lakh three years ago, the investment would have grown to ₹2,57,160.
In the past five years, the scheme has given a CAGR return of 23.05 percent. This means if someone had invested ₹one lakh in the scheme, it would have grown to ₹2,81,950.
In the past 10 years, the scheme has given an annualised return of 20.02 percent, thus enabling an investment of ₹one lakh to grow to ₹6.20 lakh.
| Tenure | Return (%) | ₹one lakh becomes (Rs) |
| 1 | 48.99 | 1,48,990 |
| 3 | 37.08 | 2,57,160 |
| 5 | 23.05 | 2,81,950 |
| 10 | 20.02 | 6,20,000 |
| Since launch | 17.72 | 24,33,190 |
(Source: dspim.com; Since launch returns calculated till Dec 29, 2023)
Other scheme details
The scheme has equity allocation of 97.89 percent while the remaining allocation is towards debt. The total AUM of this scheme is ₹3,055 crore.
The top constituent stocks include NTPC, L&T, Hindustan Aeronautics, Apar Industries and Siemens, while the top sectors are industrial products, construction, electrical equipment, aerospace & defence and cement & cement products.
The fund managers are Rohit Singhania, Charanjit Singh and Jay Kothari.
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