when you invest money in mutual funds you get two options in every scheme. Growth or Dividend.
If you opt for growth option it means that whatever returns you generate on these units will be reinvested and your next return would be on the increased principle.
This is called COMPOUNDING. Compounding essentially means earning returns not just on the initial investment but also on the accumulated returns from previous periods. This compounding effect has a great impact, especially when investments are allowed to grow over an extended period.
The 8–4–3 rule shows the speed of compounding
In the initial 8 years, the compounding effect shows good results, but its speed increases in the next 4 years and super-exponentially in the following 3 years.
Example
SIP monthly amount 20000
Assume ROI 10%
After 8 years
After 12 years
after 15 years
See the amount invested and see the exponential growth in returns !
THUS START AS EARLY AS YOU CAN
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