Have you ever heard about the word “Compunding” You probably have, So now lets discuss and learn about it. Compounding is a magic which can do wonders for people who love to invest for long term.

It is a magical tool for people who want their surplus money to grow over the years. Basicly COMPOUNDING is the process whereby interest is credited to an existing principal amount as well as to interest already paid. Compounding thus can be construed as interest on interest—the effect of which is to magnify returns to interest over time, the so-called “magic of compounding.”

HOW DOES COMPOUNDING WORK!!

Now let’s understand how does compounding work!!
Let’s understand this by an example :

Let’s say their is a young boy who is planning to retire his parents when they turn 60. (asuming they are currently 40 years)
He earns a salary of about 60,000 and his monthly expenses are 50,000. SO, he starts investing 10,000 surplus money in an index fund of india called NIFTY 50. The nifty 50 gave an avarage ROI of 10-12% PA. Assuming(12%)

• In 5 year he will have only 8.24 Lakhs
• In 10 year he will have 23.20 Lakhs
• In 15 years he will have 50 Lakhs
• In 20 years he will have 1 Crore
  Yes, Just by investing 10,000 a month for 20 years you can get 1 Crore by just investing 24 Lakhs in total, That is a massive profit of almost 76 Lakhs.
  

Here is how you can also calculate!!