Hi Srikanth,
Since the markets go through ups and downs throughout the year, could please help me understand how compounding work in mutual funds investment?
Harleen
4 Answers
Hi,
In mutual funds, compounding is generally happens by re-investing the income (dividend income or interest income) received by mutual fund houses, on their investments in different financial securities (Stocks, bonds, company FDs etc.,)
When the principal is combined with the re-invested income, your investment will grow at an increased rate.
However, as returns are not guaranteed, and due to volatility in financial markets, the compounding may or may not be achieved. There are chances that an investor may get negative returns and lose capital.
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