Compound interest is key to long-term wealth creation. Explore investment options that maximize compounding with our advisors.
What is Compound Interest?
Compound interest is the interest calculated on the initial principal amount, which also includes all of the accumulated interest from previous periods. Often described as "interest on interest," it makes a deposit or loan grow at a faster rate than simple interest, which is calculated only on the principal amount.
How Compound Interest is Calculated
The formula for compound interest is:
Maturity Value = P × (1 + r/n)^(n×t)
Where:
P = Principal Amount (the initial amount of money)
r = Annual Interest Rate (as a decimal)
t = Time Period in Years
n = Number of times interest is compounded per year (e.g., 1 for yearly, 4 for quarterly, 12 for monthly)
The total interest earned is the Maturity Value minus the Principal Amount. The more frequently interest is compounded (higher 'n'), the faster the investment grows.
The Power of Compounding
Accelerated Growth: Your money grows exponentially over time because you earn returns not only on your initial investment but also on the returns themselves.
Time is Key: The longer your money is invested, the more significant the impact of compounding becomes. Starting early is highly beneficial.
Frequency Matters: More frequent compounding (e.g., monthly vs. annually) leads to slightly higher returns, although the difference becomes less pronounced at very high frequencies.
Foundation of Long-Term Investing: Compounding is a fundamental principle behind successful long-term investments like mutual funds (via SIPs), retirement accounts (EPF, PPF, NPS), and even stock market growth over decades.
Disclaimer: This calculator provides an estimate based on the compound interest formula. Actual returns on investments are not guaranteed and depend on the specific product, market conditions, and associated risks. Consult a financial advisor for personalized investment advice.