Compound Interest
Interest earned not only on your original amount but also on the interest already added — so growth accelerates over time.
With compounding, each period's returns are added to your balance and then earn returns of their own. The effect is small at first and dramatic over long periods, which is why starting early matters so much.
The same force works against you on debt: an unpaid credit-card balance compounds rapidly in the wrong direction.
Example
₹1,00,000 invested at 12% a year grows to roughly ₹3.1 lakh in 10 years, but about ₹30 lakh in 30 years — the curve steepens with time.
Key points
- Returns earn returns of their own.
- Time is the most powerful ingredient.
- It also magnifies high-interest debt.
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Related terms
A way of investing a fixed amount in a mutual fund at regular intervals — usually monthly — instead of all at once.
InflationThe gradual rise in the general level of prices over time, which reduces what each rupee can buy.
Net Asset Value (NAV)The per-unit value of a mutual fund, calculated as the total value of its holdings minus expenses, divided by the number of units outstanding.
Expense RatioThe annual fee a mutual fund charges to manage your money, expressed as a percentage of your investment.