Whenever you read about the investing world, or look at the advice offered by legendary investors, you will notice a common aspect – there is a tremendous amount of importance being placed on the concept of compound interest. In the bestselling bookThe Snowball: Warren Buffett, it is mentioned that one of the biggest reasons behind Buffett’s enormous wealth is compound interest. If you are thinking of trying out compound interest investments in India, here is everything you need to know.
What is compound interest?
In simple terms, compound interest refers to the interest which you earn on top of the original interest. For instance, if your simple interest for a month is 10%, then, under the compound interest scenario, next month you would earn 10% interest on the principal amount as well as the interest you earned last month. This means that the interest you earn is added back to your principal, thus making it grow significantly over the years. This concept enables investors to grow their wealth substantially in the long-term, even when they start with a small initial investment. And that is why you should start investing early, because the longer you stay invested, the longer you can benefit from compound interest.
Power of compounding in mutual funds
The entire concept behind compounding in mutual funds is to build a broad base which keeps adding value to the previous savings. So, if you start a monthly mutual fund Systematic Investment Plan (SIP) of just Rs. 1000, and stay invested for the next 10 years, you can look forward to accumulating Rs. 1,82,946, at a return rate of 8% per annum. In these 10 years, your invested mount would be Rs. 1.2 lakh, and compound interest would help you earn a profit of over Rs. 60,000. Compound interest works better over time so, if you reinvest the money you earned for another 10 years, you could look forward to seeing it more than double to almost Rs. 4 lakhs! That is the power of compounding in mutual funds and you must begin investing right away to make full use of this opportunity.
Compound interest returns calculation
The most beneficial aspect of compound interest is the fact that everything contributes to your future gains – be it your existing investment, the return on this investment, or the new investment you make each month. Therefore, a mutual fund SIP for long term investment is the best way to leverage compound interest investments in India. With mutual fund investments, compound interest helps you create a cycle of earnings that continues to grow throughout the investment period. The only thing you need to remember is to reinvest the earnings being generated as compound interest works better on a broader base. The more money you can add to the original investment, the higher your returns will be.
Let us consider the following return calculator to clear the concept further –
Here you can see that, with an initial investment of 1 lakh rupees, and 10% returns per annum, compound interest can help grow your wealth from 6.10 lakhs to 8.05 lakhs in five years, offering you an interest income of almost 2 lakh rupees!
Now that you know how compounding works, and how you can grow your wealth by using this facility, do not waste any more time! Start investing in mutual funds today to enjoy the fruits of compound interest and remember to stay invested for the long term.
An investor education initiative by Edelweiss Mutual Fund
All Mutual Fund Investors have to go through a onetime KYC process. Investor should deal only with Registered Mutual Fund (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit -https://www.edelweissmf.com/kyc-norms
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS,
READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
Whenever you read about the investing world, or look at the advice offered by legendary investors, you will notice a common aspect – there is a tremendous amount of importance being placed on the concept of compound interest. In the bestselling bookThe Snowball: Warren Buffett, it is mentioned that one of the biggest reasons behind Buffett’s enormous wealth is compound interest. If you are thinking of trying out compound interest investments in India, here is everything you need to know.
What is compound interest?
In simple terms, compound interest refers to the interest which you earn on top of the original interest. For instance, if your simple interest for a month is 10%, then, under the compound interest scenario, next month you would earn 10% interest on the principal amount as well as the interest you earned last month. This means that the interest you earn is added back to your principal, thus making it grow significantly over the years. This concept enables investors to grow their wealth substantially in the long-term, even when they start with a small initial investment. And that is why you should start investing early, because the longer you stay invested, the longer you can benefit from compound interest.
Power of compounding in mutual funds
The entire concept behind compounding in mutual funds is to build a broad base which keeps adding value to the previous savings. So, if you start a monthly mutual fund Systematic Investment Plan (SIP) of just Rs. 1000, and stay invested for the next 10 years, you can look forward to accumulating Rs. 1,82,946, at a return rate of 8% per annum. In these 10 years, your invested mount would be Rs. 1.2 lakh, and compound interest would help you earn a profit of over Rs. 60,000. Compound interest works better over time so, if you reinvest the money you earned for another 10 years, you could look forward to seeing it more than double to almost Rs. 4 lakhs! That is the power of compounding in mutual funds and you must begin investing right away to make full use of this opportunity.
Compound interest returns calculation
The most beneficial aspect of compound interest is the fact that everything contributes to your future gains – be it your existing investment, the return on this investment, or the new investment you make each month. Therefore, a mutual fund SIP for long term investment is the best way to leverage compound interest investments in India. With mutual fund investments, compound interest helps you create a cycle of earnings that continues to grow throughout the investment period. The only thing you need to remember is to reinvest the earnings being generated as compound interest works better on a broader base. The more money you can add to the original investment, the higher your returns will be.
Let us consider the following return calculator to clear the concept further –
Here you can see that, with an initial investment of 1 lakh rupees, and 10% returns per annum, compound interest can help grow your wealth from 6.10 lakhs to 8.05 lakhs in five years, offering you an interest income of almost 2 lakh rupees!
Now that you know how compounding works, and how you can grow your wealth by using this facility, do not waste any more time! Start investing in mutual funds today to enjoy the fruits of compound interest and remember to stay invested for the long term.
An investor education initiative by Edelweiss Mutual Fund
All Mutual Fund Investors have to go through a onetime KYC process. Investor should deal only with Registered Mutual Fund (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit -https://www.edelweissmf.com/kyc-norms
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS,
READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
