New Delhi, June 25 -- Staying invested for a long period of time in a stock or a mutual fund tends to deliver disproportionately higher return provided the choice of stock or fund is correct. This happens because of the phenomenon known as compounding. It is so potent that some experts refer to it as 'magic'.

The rationale behind compounding works like this: return on investment in the first few years gets added to the initial investment, which allows the principal to deliver even higher returns in later years. Consequently, the initial investment grows significantly. To illustrate this point, we handpick one mutual fund scheme Tata Equity P/E Fund which has delivered 16 percent return on its SIP.

Here, we explain how much the investmen...