Power of Compounding in Investments

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In very simple terms, the process of earning, “income on income” is termed as Compounding.
The beauty of compounding lies in the fact that: 

a.  It is a very powerful force to multiply money.

b.  It is a very simple idea to understand. 
c.  It is a very easy tool to implement. 

Let us understand compounding effect with the help of following example:

An investment of ₹1000/- pm for 30 years generating returns of 6%, 10% and 15% amount to ₹10 lakhs, ₹22 lakhs and ₹70 lakhs respectively. The difference can be seen in the graph below. 

From the graph above we understand that in the short term the difference in growth may not be more, but in long duration, there is a drastic difference in growth due to the magic of compounding, which is the reward for patience and consistency.

“Compound interest is the eighth wonder of world.He who understands it earns it, he who doesn’t pays it.” -Elbert Einstein