What do mean by compounding?
One should understand the simple principle of finance that an investment can be rapid if investment proceeds are re-invested. If interest incomes are re-invested and allowed to earn at the same rates, the rates are enhanced over a period of time. This is called compounding. For maximum benefits investors should allow their investments to compound. For eg. If you invest Rs 1000 per month continuously for next 10, 20, 30, 40 and 50 years and allow it earn an interest @12%. Your actual sum of money at the end of these period would be as follows: Amount invested per month No. of years Compounded rate of interest Total Amount at the end of period 1000 10 12% 2,30,038 1000 20 12% 9,89,255 1000 30 12% 34,94,964 1000 40 12% 1,17,64,773 1000 50 12% 3,90,58,340 This is said to be the power of compounding.
