"Compound interest is the eighth wonder of the world. He who understands it, earns it... he who doesn't... pays it." — Albert Einstein.
Most people think linearly. If you save ₹10,000 a year for 10 years, you think you'll have ₹1 Lakh plus some interest. That is Simple Interest.
Compound Interest is different. It is "Interest on Interest."
Year 1: You earn interest on Principal.
Year 2: You earn interest on (Principal + Year 1 Interest).
By Year 20, your "Interest" component becomes larger than your actual investment!
Let's look at two friends, Rahul and Sameer. Both invest ₹10,000/month in a Mutual Fund giving 12% returns.
| Person | Start Age | Stop Age | Total Invested | Corpus at 60 |
|---|---|---|---|---|
| Rahul | 25 | 60 | ₹42 Lakhs | ₹6.5 Crores |
| Sameer | 35 | 60 | ₹30 Lakhs | ₹1.9 Crores |
The Shocking Truth: Sameer started just 10 years later. He invested only ₹12 Lakhs less than Rahul. But his final corpus is ₹4.6 Crores less!
That is the punishment for delaying investment.
Want to know when your money will double? Use this mental math trick.
Formula: 72 ÷ Interest Rate = Years to Double.
1. Start Early: Even if you start small (₹500), start NOW.
2. Be Consistent: Don't stop your SIP when markets fall.
3. Patience: The "Hockey Stick" curve of compounding usually kicks in after Year 8 or Year 10.
Examples assume a constant rate of return (12% for Equity), which is historical but not guaranteed. Inflation will reduce the purchasing power of the final corpus.
Tax Compliance
Income Tax Department (India) ↗Mutual Fund Regulations
Securities & Exchange Board (SEBI) ↗Provident Fund & Pension
EPFO Official Portal ↗*CalcTools highly recommends cross-verifying all calculated data with the above primary government portals.