How to leverage power of compounding

Compounding refers to the reinvestment of earnings at the given rate of return to constantly grow the principal amount, year after year. The power of compounding works by growing your wealth exponentially. Money 9 Helpline hosted Sebi registered Investment Advisor Renu Maheshwari to help you understand how the superpower of compounding can make you rich.

Edited excerpts

Pankaj Gaur, Patna: I want to invest around Rs 10,000 in the stock market. As a first-time investor, I want to understand the concept of compounding and how it will affect my small, one-time investment?

Maheshwari: If you are investing Rs 10,000 today, you need to understand that your money will grow but it will go through the ups and downs of the market dynamics. The money will not grow in a linear fashion. So you must understand that compounding in markets should not be treated as an arithmetic concept. In stock markets, if you are investing keep it for a longer period of time. In 5-10 years your money will grow.

Mukesh Bhati, Gurugram: I want to switch from regular to direct funds. Does the switching get implemented from the day of execution?

Maheshwari: When you are switching from regular to direct it will be a separate transaction. So from regular, it will come in your bank account first and then from your bank account, it will move to direct. So technically it will be treated as a new transaction.