Discover the true power of compounding. See how frequently compounding makes a massive difference to your final wealth — and why starting early beats investing more.
Simple interest is like a tree that drops the same number of fruits every year. Compound interest is like a tree that drops fruits, but those fruits grow into new trees that also drop fruits. Each year, you're earning interest on your original money and on all the interest you already earned. Over decades, this creates the wealth snowball that Warren Buffett called "the eighth wonder of the world."
Priya puts ₹1,00,000 in a scheme for 10 years:
📌 Simple interest at 8%: She earns ₹8,000 every year, period. After 10 years: ₹1,80,000.
📌 Compound interest at 8% (annual): In Year 1 she earns ₹8,000. In Year 2 she earns 8% on ₹1,08,000 = ₹8,640. This grows each year. After 10 years: ₹2,15,892.
📌 Compound interest at 8% (monthly): Same rate, but compounded 12 times a year. After 10 years: ₹2,21,964.
The difference between simple and monthly compound: ₹41,964 — all free money, zero extra effort.
Mutual fund NAVs compound every single trading day. This is why a 12% annual return in equity feels modest for the first 5 years but explosive by year 20. The math doesn't change — only time does. Starting 5 years earlier can mean ₹30–50 lakh more at retirement, even with the same monthly SIP amount.
Comparing FD interest with mutual fund returns without accounting for compounding frequency. Many FDs advertise 7.5% but compound quarterly — the effective annual yield is 7.71%. Always look at the effective annual rate (EAR), not the stated rate.
We'll show you the compounding effect, interest earned, and year-by-year growth.
A = Final amount (what you get back)
P = Principal (your initial investment)
r = Annual interest rate (as a decimal, e.g. 12% = 0.12)
n = Compounding frequency per year (12 for monthly)
t = Time in years