You had probably registered in any Investment or Stock App last year to invest you savings. But you did that just for some short term? If you just invested for some short term profit, then you may have no future plans or you don’t know about power of C.I. i.e., Compound Interest.
You all had solved questions of Compound Interest in you childhood. But do you know what impact C.I. can have on your savings? How your wealth can increase if you just invest small amounts for long time? Let me give you some Gyaan on C.I. and Investment!
What is Compound Interest?
Compound interest is basically interest on your Principal amount + accumulated interest of previous periods. Let’s understand through an example.
For example, you invested ₹1000 in a mutual fund, that will give you 10% interest per annum.
After one year you will have Prinicipal of ₹1000 + ₹100 as interest.
Now from second year comes the use of C.I. You will get interest on ₹1100, which will be ₹110. Now you have total amount of ₹1210
Next year you will get interest on ₹1210, which will be ₹121. Now you have total amount of ₹1331.
Simply C.I. is interest on Principal + interest on interest.
Impact of C.I. if you invest!
C.I. is like a bomb, the more you wait, the higher will be the impact of it when it explode. Let’s just understand with an example.
Scenario 1 -You invested ₹50,000 per month means ₹6 lakhs annually at 10% per annum C.I. You started investing this amount from age 33 till the age of 60 years.
Now you had invested total amount of ₹1 Crore 62 lakhs in span of 27 years.
Do you how much amount in return will you get with interest. It will be ₹8 Crore 23 lakhs.
This is the power of C.I.
Impact of C.I. if you start investing early.
The impact of C.I. is different if you start investing money early like in your 20s. Let’s understand this with an example.
Scenario 2 -You started investing ₹50,000 per month, yearly it is ₹6 lakhs, at 10% per annum. You started investing this amount from age 25 till you are 35. At age 35 you didn’t withdraw it, you keep it till age 60.
Now you had invested an amount of ₹60 lakhs for a period of 35 years.
Do you know how much amount you will get at age of 60? It will be ₹11 Crore 18 Lakhs.
Difference in Scenarios – Did you noticed the difference? You got around 8 Crore after investing constantly from age 33 to 60. But if you had invested early from age 25 and invested till just age of 35, you had got around 11 Crore.
Investing early and keeping the money for long time as investment, gave you around ₹3 Crore more!
The thing we can learn from this blog is ‘start investing early’. Investing early can give you returns of big amount at time of your retirement. I know that inflation will also work in between, But still you will get more value of your money at maturity than inflation prices. So start investing as early as possible!
This blog is inspired from Tanmay Bhat’s video!
Thank you for reading!