Every investor believes they understand compounding.
In investing, compounding is the first concept we learn and the last one we master.
We celebrate it when markets rise, invoke it when they fall, and quote it whenever patience runs thin. Every advisor mentions it. Every investor nods knowingly. But look closely, and you’ll see how far practice drifts from principle.
Over time, it has turned from a principle into a platitude, repeated so endlessly that we’ve stopped asking what it truly demands. Because compounding isn’t a promise that time alone will make you wealthy, it’s a process that tests whether your decisions can outlast your emotions.
Somewhere along the way, the most powerful force in finance turned into a catchphrase. This piece is about returning it to its rightful meaning. Because when you change the lens, you realise compounding isn’t one idea. It’s three moving parts, and how you treat each of them determines everything that follows.
In this edition of the newsletter, we’ll explore:
- Seeing compounding through the right lens
- The control myth: what we really influence
- The human layer: patience as the hardest variable
Let’s begin.
Seeing compounding through the right lens
When you strip compounding down to its essence, you realise it’s a mechanism.
And like any mechanism, it’s built on a few moving parts that together shape the outcome.
On paper, it all sits neatly in one timeless equation:
A = P × (1 + r/100)^t
This formula carries the entire logic of wealth creation.
A is what we want — the accumulated wealth.
P is what we control — the capital we choose to deploy.
r is what we chase — the return we hope to earn.
t is what we underestimate — the time we actually stay invested.
It’s remarkable how much philosophy sits inside those letters. Because compounding, at its core, is a reflection of behaviour, not arithmetic.
Every letter stands for a decision: whether to begin, how much to commit, how long to stay, and how much faith to place in what we cannot control.
We tend to think of compounding as a law of finance, but it’s closer to a law of discipline. And it’s only when we start seeing the formula through this lens that its real meaning begins to unfold.
Because once you do, a question emerges — if every variable shapes the outcome, which of them truly sits within our control?
The control myth: what we really influence
Why we chase the wrong variable
When most investors look at compounding, their eyes go straight to r — the rate of return.
It’s the most glamorous part of the equation, the one that headlines every fund ad and dominates every conversation.
We chase higher returns the way sailors chase the wind, believing that if we can just catch a stronger gust, the journey will be faster.
But investing doesn’t work like sailing. The wind changes too often.
And no matter how skilfully you navigate, you can’t control its direction.
In compounding, r is the variable that attracts the most attention and offers the least control.
It’s shaped by the economy, market cycles, business performance, and sentiment, forces that are difficult to predict with certainty.
Yet this is where most investors spend the bulk of their time and energy.
The quiet power of what we control
If you look closely, compounding gives you control over two variables — P, the amount you invest, and t, the time you let it work. These are far less glamorous than returns, but they form the foundation on which compounding truly operates.
- P (Principal) — The commitment to put money to work. Every delay, hesitation, or redemption reduces the base on which growth builds.
- t (Time) — The discipline to stay invested. Every break, pause, or “wait-and-watch” phase shortens the runway where wealth can multiply.
Together, they determine how much of compounding’s magic you actually capture.
Most investors technically control P and t, but behave as if they don’t.
We delay investing until “markets cool off.” We pause SIPs when volatility rises. We redeem early to “book profits.” Every one of those actions shrinks either the size or the duration of the compounding engine.
The investor who steadily increases P over time and protects t from interruptions almost always outperforms the one chasing a marginally higher r.
Too much theory at this point, let’s play around with some numbers-
1. When capital compounds alongside returns
Take two investors, each earning a steady 12% return for 20 years.
Both start with an SIP of ₹2 lakh per month.
- Investor A keeps it flat at ₹2 lakh.
- Investor B increases it by 10% every year — ₹2.2 lakh in year two, ₹2.42 lakh in year three, and so on.
Both stay invested for 20 years, both earn 12%.
The result?
- A’s ₹2 lakh monthly SIP at 12% over 20 years means an investment of about ₹4.8 crore, which grows into a corpus of roughly ₹18.4 crore.
- B’s 10% annual top-up SIP, starting at ₹2 lakh and increasing by 10% each year, results in an investment of about ₹13.75 crore over 20 years, which grows into a corpus of roughly ₹37.3 crore.
Same market, same return, same duration.
The only difference was that one investor kept feeding the machine.
That incremental discipline, increasing your investment in line with your income, nearly doubled the outcome.
2. The unseen cost of interruption
In compounding, the real damage rarely comes from market declines.
It comes from interruptions.
Every time a SIP pauses or capital is withdrawn, the process resets. The principal stops growing, the timeline shortens, and the base that future returns build on becomes smaller.
Consider this. Two investors begin with ₹1 crore, both compounding at 12% for 25 years. We are assuming linear returns here for the sake of simplicity.
- The first stays uninterrupted and ends with about ₹17 crore.
- The second takes a short break due to financial contingencies and withdraws the entire corpus for a period of three years and ends with around ₹12.1 crore.
Same return. Same market.
Just less continuity and a ₹5 crore difference in outcome.
That’s the unseen cost of interruption: it doesn’t appear in performance reports or account statements. It appears in the wealth that never gets created.
The discipline of compounding lies not in doing more, but in not stopping.
Time and capital are the only variables we truly control — and each time we withdraw them, we trade exponential potential for momentary comfort.
We often think of compounding as a reward for patience.
In reality, it’s a test of endurance.
The human layer: patience as the hardest variable
If compounding were purely about numbers, everyone would master it.
But numbers aren’t the challenge, behaviour is.
For long stretches, compounding feels invisible. You keep investing, the graph barely moves, and the urge to “make it work harder” grows stronger.
The paradox is that compounding works best when you leave it alone, but everything about human nature resists that stillness.
We’re conditioned to equate effort with progress.
When something matters deeply, our instinct is to take control, monitor, adjust, and optimise.
That instinct serves us well in business, but in investing, it quietly works against us.
When success becomes a distraction
I often meet business leaders and professionals who’ve built exceptional success in their own fields — people deeply skilled at what they do and fully in command of their craft. They’re used to being in control, solving problems, and making decisions that change outcomes.
But in investing, that same mindset often turns counterproductive.
They spend hours analysing fund performance, tracking markets, comparing portfolios, and debating allocation tweaks, all in the hope of squeezing out incremental returns. You don’t get better outcomes by checking your portfolio more often.
Ironically, this obsession diverts time and focus away from what actually grows their wealth i.e, their core business or profession. Their portfolio becomes a full-time job that delivers no proportional reward.
It’s like trying to perform surgery on yourself because you’ve read a few medical journals. You wouldn’t do that, you’d go to a specialist.
You don’t accelerate returns by watching them more closely. You accelerate them by giving your capital the time and stability it needs and by letting people who understand the mechanics manage it for you.
The great role reversal
The more access investors have to information, the harder it has become to stay still.
Every market movement, every fund update, every headline feels actionable, as if not reacting means missing out.
But investing was never meant to be lived day to day. It was meant to be designed and left to work.
Over time, this has led to a quiet role reversal.
The investor has become obsessed with r — the rate of return — checking performance daily, chasing outperformers, and switching funds at the slightest discomfort.
The fund manager, on the other hand, has become the one defending t — asking for time, patience, and continuity.
Markets, by their nature, are designed to keep you restless. Think about it this way:
- There are 252 trading days in a year.
- In most listed companies, only about a dozen days actually matter- four quarterly results, a few management updates, product launches, or macro triggers that genuinely alter fundamentals.
- The remaining 240 days are driven largely by sentiment, speculation, and human behaviour oscillating around those few events.
- And yet, it’s during these 240 noise-filled days that investors make most of their mistakes.
This is why mutual funds have endured as one of the most reliable engines of wealth creation
.They are built on structure, designed to turn volatility into opportunity through diversification, process, and time. When you invest through a fund, you hand over timing, selection, and day-to-day noise to professionals whose full-time job is to stay consistent through uncertainty.
At this point, your only role is to simply stay invested long enough for that consistency to work.
Because in compounding, time belongs to the investor, and the process belongs to the manager. When both play their part, wealth compounds quietly, just as it should.
In summary
Compounding is a way of thinking.
It rewards simplicity over sophistication, design over reaction, and endurance over brilliance.
The outcome doesn’t depend on how accurately you predict returns, but on how consistently you manage what’s within reach.
Focus on P — the capital you commit — and t — the time you stay invested.
Leave r to process, discipline, and time.
Because wealth isn’t built by reacting to what markets do every day, but by respecting the two variables that quietly decide everything that follows.
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