Re-investing your fund returns can help your wealth grow over the long time period. Investors need to know the advantages of re-investing the fund returns as this is a simple strategy which takes advantage of the power of compounding.
Reinvestment based on the principle of compounding is a powerful strategy as the annual investment returns are reinvested back into the principle to generate additional returns in future. Even the fixed deposit savers who lock in their money normally choose for monthly compound interest to benefit from the compounding effect. For those unit trust investors who automatically reinvest their distributions back into the fund, their investment can be grown at the fund’s compounded rate of return over the years.
However the compounding effect requires time. The longer the time over we reinvest our returns, the greater rewards we will gain as we allow our investments to grow over the time.