Compounding is simply earning returns on your returns. In the early years it feels slow and unremarkable. Then, quietly, it accelerates — and the last few years of a long investment often create more wealth than all the earlier years combined.
A tale of two investors
Imagine two friends. Aarti starts investing a modest amount every month at age 25 and stops at 35 — just ten years. Rohan waits until 35 and then invests the same amount every month right up to 55 — twenty years. Despite investing for only half as long, Aarti often ends up with a larger corpus at 55, purely because her money had an extra decade to compound. That head start is almost impossible to catch up with later.
What this means for you
You do not need a large amount to begin. You need to begin. A small SIP started today, and increased gradually as your income grows (a "step-up" SIP), harnesses time far more effectively than a large amount started years from now.
Let compounding work — do not interrupt it
The enemy of compounding is interruption: stopping SIPs when markets wobble, or withdrawing early for non-essential wants. Staying invested through cycles is what allows the curve to bend upward. Set a goal, automate your investing, and give it time.
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Disclaimer: Mutual fund investments are subject to market risks. Read all scheme related documents carefully. Insurance is the subject matter of solicitation. This article is for general educational purposes and is not personalised financial advice.
