In this post, we’re going to use the Nifty Next 50 index to bring to life an investing concept you hear about all the time, but whose real impact often remains unintuitive: compounding.
So first things first: what’s the Nifty Next 50? Well, the SEBI classifies the top 100 Indian companies (in terms of their market cap) as large-cap companies, and while the Nifty 50 tracks the performance of the 50 biggest large-cap stocks, the Nifty Next 50 tracks the performance of the remaining 50.
This index has been soaring for a while now: between January and July 2024, it rose around 39%, and between July 2023 and July 2024, it rose a phenomenal 67%1.
Now here’s the unintuitive bit. Suppose you’d started investing ₹10,000 every month in a Nifty Next 50 index fund in June 2004, and had stopped doing so in May 2014. Then you would’ve ended up with around ₹28 lakh, against an investment of ₹12 lakh. Not bad, right?
But what if you’d kept that SIP going for twice as long, i.e. until May 2024? Naively, one might think that even after taking compounding into account, you’d end up with only somewhat more than twice as much. Maybe three times as much? … Surely not four times as much?!
Brace yourself. Letting your SIP run until 2024 would’ve left you with a final investment value of around ₹1.66 crore! That’s nearly six times what you would’ve got if you’d ended the SIP in 2014 (i.e. ₹28 lakh).
Put simply: merely doubling the SIP tenure (and hence the total amount invested) led to a nearly six-fold increase in your investment’s value!
Source: DSP internal
The lesson here is simple: once you have some sound investments locked in, don’t interrupt compounding. Instead, give your investments the time they need to grow.
If you need help putting such ideas into practice, or with any other aspect of the investing process, our experts are always here to guide you: simply click here.
1 Source: DSP internal
Leave a comment