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Is there a compounding effect in mutual funds like in FDs?

Dhirendra Kumar explains the difference between the compounding in mutual funds and FDs

Answer transcript: Yes, the growth plans of mutual funds are 'compounders'. But you should not look at them like a fixed deposit where the compounding is predictable and guaranteed. You do not such guarantees on mutual funds. However, history has shown that they earn more. Even the Sensex has earned 17-18% in the last 20 years, twice as much as the deposit rate. About a third of the universe of actively managed to beat the benchmark by a large margin, compounding at 20-22% compounding annually.