When we talk about the power of compounding, we refer to the increase in the value of an investment due to the
interest that gets added on the principal amount as time passes. The process involves reinvesting the earnings you
get from your initial invested amount and more interest is earned on the accumulated interest and so the process
continues. Popularly known as ‘the power of compounding’, this phenomenon works both on your assets and
You can avail the power of compounding through your investments in mutual funds via the systematic investment plan (SIP) route. It is a disciplined method of investing in mutual funds. With SIP you can invest in mutual funds periodically as per your preference. It could be weekly, monthly, quarterly or even annually. By choosing the SIP route for your investments, you could invest for a longer period of time without worrying about investing a lump sum and also have the chance to benefit in the long term as you average the cost of investments and the power of compounding.
Compounding is the process by which an investment generates earnings and then reinvests those earnings to generate even more earnings in the future. In the context of SIPs (Systematic Investment Plans), compounding can have a significant impact on the final value of your investment. When you invest in a SIP, your money is invested in the scheme on a regular basis, and any earnings generated by the scheme are reinvested back into the scheme. Over time, these earnings can accumulate and grow, which may then lead to a much better final value of your investment than if you had simply invested the same amount of money in a non-compounding investment.
However, it's important to remember that compounding returns are not guaranteed, and the value of your investment can go up or down based on market conditions. That's why it's important to stay invested in the scheme for a long period of time to allow the power of compounding to work its magic. Additionally, it's important to choose a scheme that has a good track record of generating returns over the long term and that aligns with your investment goals and risk appetite.
To conclude, for compounding to potentially show its results, it requires these factors- regular investments, long investment horizon and consistent investments. Simply put, invest your money for the long term and let power of compounding make your money work for you.
An investor education initiative by ICICI Prudential Mutual Fund
Visit www.icicipruamc.com/note to know more about the process to complete a one-time Know Your Customer (KYC)requirement to invest in Mutual Funds. Investors should only deal with registered Mutual Funds, details of which can be verified on the SEBI website (http://www.sebi.gov.in/intermediaries.html). For any queries, complaints & grievance redressal, investors may reach out to the AMCs and / or Investor Relations Officers. Additionally, investors may also lodge complaints on https://scores.gov.in if they are unsatisfied with the resolutions given by AMCs. SCORES portal facilitates you to lodge your complaint online with SEBI and subsequently view its status.(http://www.icicipruamc.com/note)
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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