How does the magic of compounding work?
- 9 Yards Advisory
- Oct 11, 2024
- 2 min read
Updated: May 29
Compounding is the process where your investment earns returns, and those returns generate even more returns over time.
Why is Compounding So Powerful?
1. Time is Your Biggest Ally
The longer you stay invested, the more your money grows exponentially.
📌 Example:
Investor A (Starts at 25):
Invests ₹10,000/month at 12% return
By age 55 (30 years), total = ₹3.5 Crores
Investor B (Starts at 35):
Same investment, but only 20 years
Total = ₹1 Crore
👉 10 extra years = ₹2.5 Crores more!
2. Small Amounts Become Huge Over Time
Even ₹5,000/month can grow into crores with compounding.
📌 Example (SIP in Mutual Funds):
How to Maximize Compounding? (For Indian Investors)
1. Start Early (Even with Small Amounts)
A 25-year-old investing ₹5,000/month at 12% will have ₹1.75 Cr by 55.
A 35-year-old investing the same will have only ₹50 Lakhs by 55.
2. Stay Invested for Long Term
Short-term market fluctuations don’t matter if you hold for 10+ years.
Example: Nifty 50 gave ~13% CAGR in the last 20 years despite crashes (2008, 2020).
3. Reinvest Dividends & Interest
Instead of taking Bonds and FD interest yearly, opt for monthly interest options which can then go towards monthly SIP’s
In mutual funds, choose growth option (not dividend) for compounding.
4. Increase SIPs Gradually
If your salary increases, increase your SIP by 10% yearly → Massive growth!
📌 Example:
Start with ₹10,000/month SIP, increase by 10% yearly.
After 25 years at 12% return = ₹6.5 Crores (vs ₹3.2 Cr without increase).
5. Avoid Withdrawing Early
Every withdrawal kills compounding growth.
Emergency fund should cover expenses so you don’t liquidate investments.
🚀 Even ₹1,000/month can become ₹50 Lakhs+ in 30 years.
🚀 The earlier you start, the richer you become.
Need help picking the best compounding investments? Do reach out to us �
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