New Delhi: Compound interest is a financial phenomenon where an investment generates earnings that are reinvested or kept invested to earn additional earnings. Essentially, it’s the process whereby an investment’s value increases because both its capital gains and interest earn interest over time.
In today’s financial landscape, compound interest continues to wield significant influence. For instance, small and mid-cap mutual funds have posted impressive returns, while blue-chip stocks like those in the Nifty50 surged by 30% in fiscal 2024. The stellar performance of small-cap mutual funds, which primarily invest in companies ranked below 250 by market capitalization, underscores their potential for wealth creation.
How to Turn Rs 100 into Rs 1 lakh
Imagine investing Rs 100 in a high-yield savings account or a mutual fund offering an annual return of 15%. In the first year, your investment grows to Rs 115—a 15% increase.
By the second year, you’re not just earning 15% on the original Rs 100 but also on the Rs 15 gained in the first year, resulting in a total of Rs 132.25. The initial Rs 15 earned is now working alongside your original investment to generate further returns.
As time progresses, your investment continues to grow because you’re earning returns on both the principal amount and the returns from previous years. It’s akin to a snowball rolling downhill, accumulating more snow (money) as it moves. The longer it rolls, the larger it becomes.
After approximately 25 years, your initial Rs 100 investment could potentially grow to Rs 1 lakh, all thanks to the power of compounding. The more frequently your investment compounds (e.g., semi-annually instead of annually), the faster it will grow.
Starting Early for Greater Returnsa
In conclusion, compounding in investments acts as a multiplier for your money. Starting to invest early provides your money with more time to compound and grow. Patience and time are crucial in fully harnessing the power of compounding, transforming a modest initial sum into a substantial nest egg over the years. Begin early, maintain consistency, and witness your investments flourish.
Benefits Of Compounding in Mutual Fund: The stellar performance of small-cap mutual funds, which primarily invest in companies ranked below 250 by market capitalization, underscores their potential for wealth creation. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
