Power of Compounding:
Compounding is simply interest earned on interest. It is also referred as reinvestment of earnings at the same rate of return. Compounding is more powerful tool, it makes your money work harder for you and earn extra penny.
Earlier you start investing, Greater will be the power of Compounding. It provides multiplier effect on Investment.
Stay Invested for longer to enjoy the power of compounding. Even small investment can fetch you better return if invested for longer horizon.
Compounding effect is the eighth wonder of the world. He who understands it, earns it.
Simple Interest:
Formula: (P x N x R)/100
Compound Interest:
Formula: P x (1+R)^N
P - Principle amount
N - Number of years
R - Rate of interest
Let's compare Simple Return Vs Compounded Return
Assume We have invested Rs 1000 in two different accounts. One gives Simple Interest and another gives compounded Interest. Interest rate of both the accounts is 8% and deposited for 20 years.
In Simple Interest, You will earn interest of Rs 80/- at first year and by the end of 20th year your Investment would have grown up to Rs 2600/-
In Compounded Interest, You will earn the same interest of Rs 80/- but next year interest will be added to the principal. You will start earning interest for Rs 1080/- By end of the 20th year your Investment would have grown up to Rs 4660/-
That's the power of compounding. For the same period and same amount , Compounded return has delivered better and powerful returns.
Compounding does not provide immediate results. Start investing early and keep invested to enjoy the benefits.
Mentotax recommends you to invest wisely and as early as possible. Compounding is a magic, your investment should enjoy the magic touch.
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