ATM :: Power of compounding is the eighth wonder of the world; here’s how


By Kshitij Anand, ETMarkets.com | Updated: Nov 02, 2016, 11.09 AM ISTPost a Comment

ATM

NEW DELHI: If you believe in the power of compounding, then equity market offers you the best tool to harness this strong force via the mutual fund route, which can let create good long-term wealth.

Compounding interest separates the haves from the haven’ts. Compounding is the first step towards long-term wealth creation. When you buy a mutual fund, compounding allows you to earn interest on your principal and on the interest that you reinvest. It helps you build a large corpus over time with the smallest of initial investment.

“Einstein said the power of compounding is the eighth wonder of the world. One who understands it, earns it and the one who does not, pays it. Please exploit the power of compounding for long-term wealth creation through equity mutual funds,” Raamdeo Agrawal, Co-Founder & JMD, MOFSL, said in an interview with ETMarkets.com

“God and the government have come together to make you rich in the Indian market this year. Rs 10,000 a month invested in any equity growth fund for 25 years (Rs 30 lakh) can earn you between Rs 3 crore and Rs 25 crore,” he said.

The prerequisite for creating serious wealth is to start early, have patience and not get swayed by daily market movement. Give your investment some time to yield fruits, say experts.

You don’t have to be rich to create wealth. Many salaried people have been able to create wealth just with the magic of compounding and by following a disciplined approach towards investing.

“I know many salaried investors, who have created significant wealth than their remuneration over time. The key is to remain invested without monkeying and attempting to time the market,” said Porinju Veliyath, MD & Portfolio Manager, at Equity Intelligence India.

“Equity Intelligence has changed the financial profile of hundreds of middle-class professionals through value investing in equities,” he said.

Veliyath said India’s capital market system has evolved to world-class standards, enabling even small savers to invest conveniently, thanks to our efficient regulators and institutions.

Making money in the market has never been easy, but mutual funds have made the job a lot easier.

Stock markets never move in one direction.

There will always be some concern and fear – if not domestic then global – which will keep the market on the edge. But with a disciplined approach towards investing, investors can use volatility to buy quality stocks on dips.

“In my career spanning 25 years, there has never been a quarter where everything has gone perfectly well for India. If I go back to 1989-1990, the year 1991 was of crisis, the BOP crisis, we had the Babri Masjid demolition, Bombay bomb blasts, fall of a government, something or the other had always been missing,” Rashesh Shah, Chairman, EdelweissBSE 0.13 % Group, said in an interview with ETNow.

“To use a cliché, it is a glass half full or half empty, but the half full is actually fairly good, because in the same 25 years, the index has given you more than 18 per cent return CAGR and that was after tax,” he pointed out.

Shah said even if investors just bought the index, complete passive investing has given investors more than 18 per cent return. “As you know, the index started in 1984 or around it, and it was 100 at that time and the 100 is close to 28,000 now.”

Source: https://goo.gl/j1j5vd

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