Learn the Power of
Compounding
Hello readers, today we the best financial advisor in Lucknow share this
article based on Compounding and the Power of Compounding. The increase in the
value of an investment, due to the interest earned on the principal is termed
as Compounding. Compounding is when you
earn interest on your amount over a period of time, due to which you witness a
growth on your earnings. Power of compounding enables to grow your earnings as
your investments grows.
Compounding is the most powerful
strategy to makes your money work for you. We can simply say that it is the
most powerful tool to grow your wealth. You can invest in SIP or mutual fund to
achieve your future goals, such as retirement because in compound interest, you
earn interest on the principal amount as well as the accumulated interest
amount over successive periods. Over time, the snowball of interest turns into
a substantial amount.
Benefits of the power of
compounding
Compounding benefits over the
period of time and it is one of the biggest benefits that investors can
appreciate about the power of compounding. With the time span, you could gain
returns, and the yields on these returns could further generate great returns.
It helps to increase your investments quickly.
Saving money and earning amount
with compound interest every year is great. If you invest regularly over time,
your returns could accumulate at a much faster rate. Imagine you invest
Rs. 5,000 every month. The interest on this amount is 10% per annum. From the
below table you will learn how your investment returns would look like over a
time period:
|
Years |
5 |
10 |
15 |
20 |
25 |
30 |
|
Expected amount Rs. (in lakhs) |
3.9 |
10.3 |
20.9 |
38.3 |
66.9 |
114 |
|
Amount invested Rs. (in lakhs) |
3 |
6 |
9 |
12 |
15 |
18 |
|
Wealth Gain Rs. (in lakhs) |
0.9 |
4.3 |
11.9 |
26.3 |
51.9 |
96 |
From the above table we learn the
concept of power of compounding. The above details are shown for illustration
and explanatory purposes only. It is necessary
to start saving and investing from an early age. And when you invest regularly
for a long period, there is a chance to maximize your returns and benefit from
the full power of compounding.
Many people think that they can
begin investing only when they have large sums of money. Therefore they delay
investing until they are in their mid-40s. This is not a sound investment
strategy. When you start investing early, it doesn’t matter how much you can
invest. Even if you invest small amounts of money regularly, you will surely
achieve a significant corpus over time.
Power of Compounding and mutual funds
In this article we have discussed
about the benefits of investing a fixed amount regularly to benefit from
compound interest. But there a big question arises that where investors should
invest their money to achieve the full benefit of compounding. Then the
answer is Mutual Fund. Mutual funds are designed to magnify the power of
compounding. This is possible done through Systematic Investment Plan (SIP).
You can invest a fixed amount in mutual funds on regular basis through a
Systematic Investment Plan (SIP). This can be monthly, quarterly or
semi-annually. You are free to select the fund of your choice, for help you can
use an SIP Calculator to calculate the return on your investment and make
a SIP payment on the allotted date. Investing regularly through SIPs help you magnify
your returns over time.
While you can also invest in most
fund types through a SIP, you may want to consider investing in equity funds
for long-term goals like retirement planning because equity funds have the
potential to offer better returns in the long-term investment. And the
best thing about SIPs is that you can automate your payments anytime by giving
a standing instruction to your bank. You can easily transfer money from your
registered bank account directly to the mutual fund on the specified date. In
SIP you don’t need to worry about
missing payment schedules.
**Note:- Mutual fund investments are subject to market risk. Please read Scheme related Document carefully before investing.
For mutual fund investment consult:-
Best financial advisor in Lucknow
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