Reader's Voice • Mutual Fund Insight - May 2025

Letters to the Editor's Note

Your response to the editorial 'Compounding is more than maths'

Your response to the editorial 'Compounding is more than maths' AI-generated image

Dhirendra Kumar's Editor's Note, 'Compounding is more than maths', published on March 29, 2025, questioned the rigid, textbook interpretation of compounding and emphasised its real-world significance in long-term investing. This thought-provoking piece drew considerable feedback, reflecting our readers' perspectives. As a token of appreciation, we dedicate this section to our readers, whose insights and engagement continue to foster conversations around meaningful investing. Summary Recently, a reader sent me a thoughtful criticism, "Please stop using the term 'compounding' when it pertains to market investments like equity. 'Compounding' implies a rate of interest that ensures growth at a fixed rate YoY. There is no such assurance in the market; your investments may grow by 5 per cent, 10 per cent or even lose 5 per cent. Calling this a 'compounding' effect is misleading." The reader affirmed that market investments are the best hedge against inflation but maintained that 'compounding' is a misleading term that confuses new investors. I appreciate this feedback as it highlights the tension between academic precision and practic

This article was originally published on April 17, 2025.

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