Magic of Compound Interest
“Compound interest is the 8th wonder of the world. He who understands it earns it and he who doesn’t pays it.” – Albert Einstein
Time is your friend, impulse is your enemy. Take advantage of compound interest and don’t be captivated by the siren song of the market – Warren Buffet
Really compound interest is the greatest mathematical discoveries of all time, one who understand it know the magic compound interest can create over a period of time, luckily it is the part of investment world and it works towards the benefit of investor.
In simplest word your interest of capital is also earning income again in terms of interest, the value of investment will keep increasing and value of money will keep multiplying over the time, three key ingredient are required for the magic of compound interest (a) Rate, (b) Time and (c) Capital, where time is most important factor but in reality normally many people don’t give it much importance to the Time what it actually deserve.
To make you clarify the power of compounding and importance of Time as the key factor, we would like to help of Rule 15-15-15 of the investment world
What is Rule 15-15-15 ?
If you invest Rs 15000/monthly at an assumed rate 15% compounded yearly (normally Term CAGR is used) for 15 years, maturity will be Rs 92 lakhs , Getting Rs 92 lakhs with a investment of Rs 27 lakh only that too contribution made monthly is really a good deal , because a RD of 9% at same contribution of Rs 15000/month for 15 years would become Rs 48 lakhs only
Now See the Rule 15-15-30
If you invest Rs 15000/monthly at an assumed rate 15% compounded yearly (normally Term CAGR is used) for 30 years , maturity will be Rs 8.46 Crore, yes you hear it right it will Rs 8.46 Crore, Now this is the real magic we only doubled the time and result is almost 9 times higher
Conclusion
So, if you really want to generate magical returns with the help of Compound interest go for long term approach , give maximum time to your investment one way to give maximum time is to start as early as possible , because time is the best fund manager
Start your Investment as early as possible with Systematic Investment Route (Known as SIP), stay for long term don’t follow the so called market news and tips, Increase your contribution whenever it is possible, Withdraw when it is extremely important because when you withdraw your money you also loose potential money which your withdrawn money can earn if they remain invested.
Make Long Term Goal, Start Early, Remain Invested for Long Term and Let Compound Interest shower the magical return on your Investment