Power of Compounding: Those who understand it, earns it and those who doesn't pays it.


Friends its eleven months have been passed since my last blog in which I have mentioned that we will learn about power of compounding in next blog, now time has come to learn about “Power of Compounding”.

Albert Einstein have once described Compounding as “The Eighth Wonder of The World”: Those who understand it, earns it and those who doesn’t pays it.

We all have solved sums on compound interest but never gone into depth of compounding, how it effects our investment value. How one step can change whole of your investment value. We will learn all those effects of compounding, how investment value changes over period of time and why Einstein have described it as “The Eighth Wonder of The World”.

Original Investment Value of Rs. 1 Lakh with different time horizons and rate of return:

Years & Rate
6.00%
8.00%
10.00%
12.00%
15.00%
18.00%
20.00%
25.00%
2
1.12 Lakh
1.17 Lakh
1.21 Lakh
1.25 Lakh
1.32 Lakh
1.39 Lakh
1.44 Lakh
1.56 Lakh
3
1.19 Lakh
1.26 Lakh
1.33 Lakh
1.4 Lakh
1.52 Lakh
1.64 Lakh
1.73 Lakh
1.95 Lakh
5
1.34 Lakh
1.47 Lakh
1.61 Lakh
1.76 Lakh
2.01 Lakh
2.29 Lakh
2.49 Lakh
3.05 Lakh
10
1.79 Lakh
2.16 Lakh
2.59 Lakh
3.11 Lakh
4.05 Lakh
5.23 Lakh
6.19 Lakh
9.31 Lakh
15
2.4 Lakh
3.17 Lakh
4.18 Lakh
5.47 Lakh
8.14 Lakh
11.97 Lakh
15.41 Lakh
28.42 Lakh
20
3.21 Lakh
4.66 Lakh
6.73 Lakh
9.65 Lakh
16.37 Lakh
27.39 Lakh
38.34 Lakh
86.74 Lakh
25
4.29 Lakh
6.85 Lakh
10.83 Lakh
17 Lakh
32.92 Lakh
62.67 Lakh
95.4 Lakh
2.65 Crore
30
5.74 Lakh
10.06 Lakh
17.45 Lakh
29.96 Lakh
66.21 Lakh
1.43 Crore
2.37 Crore
8.08 Crore

Monthly Investment of Rs. 1000 with different time horizons and rate of return:

Years & Rate
6.00%
8.00%
10.00%
12.00%
15.00%
18.00%
20.00%
25.00%
2
0.25 Lakh
0.26 Lakh
0.26 Lakh
0.27 Lakh
0.28 Lakh
0.29 Lakh
0.29 Lakh
0.31 Lakh
3
0.39 Lakh
0.41 Lakh
0.42 Lakh
0.43 Lakh
0.45 Lakh
0.47 Lakh
0.49 Lakh
0.53 Lakh
5
0.7 Lakh
0.73 Lakh
0.77 Lakh
0.82 Lakh
0.89 Lakh
0.96 Lakh
1.02 Lakh
1.17 Lakh
10
1.64 Lakh
1.83 Lakh
2.05 Lakh
2.3 Lakh
2.75 Lakh
3.31 Lakh
3.76 Lakh
5.22 Lakh
15
2.91 Lakh
3.46 Lakh
4.14 Lakh
5 Lakh
6.69 Lakh
9.06 Lakh
11.16 Lakh
19.16 Lakh
20
4.62 Lakh
5.89 Lakh
7.59 Lakh
9.89 Lakh
14.97 Lakh
23.09 Lakh
31.1 Lakh
67.19 Lakh
25
6.93 Lakh
9.51 Lakh
13.27 Lakh
18.79 Lakh
32.44 Lakh
57.37 Lakh
84.85 Lakh
2.33 Crore
30
10.05 Lakh
14.9 Lakh
22.6 Lakh
34.95 Lakh
69.23 Lakh
1.41 Crore
2.3 Crore
8.03 Crore

We can clearly see from the above two tables that how time and rate of return plays important factor in our investment value. More we focus on long term (Time), more wealth we will create. As the time horizon of investment increases, compounding starts playing its magical role in investing.



Post your queries & suggestions.

Thanking You. 


Don’t Work for Money, Let Money Work for You……………….

 
Disclaimer: I am not a SEBI Registered Advisor




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