Wealth Creation

Power of Compounding

Compounding investment earnings can turn your small investments into a whopping sum after a period of time. The best way to take advantage of compounding is to start saving and investing wisely as early as possible.
Wealth is not created by earning windfall income once by speculation or gambling. Creating wealth is an art, and it can only be attained by skillful handling of one’s resources. Patience and discipline lead to wealth creation. No matter how small an amount you set aside, it all gets accumulated in the ocean you want to see. We all tend to ignore the power of compounding which is the only accelerator of building up a great corpus.

What is Power of Compounding?

Simply put, it means earning interest on interest. It leads to geometric growth in your investments and savings. You can start with a small sum as the key is not the initial investment but the duration of investment. Let’s see how a yearly investment of Rs 10,000 will grow year-on-year at different interest rates:

From the above table it can be easily understood that if somebody invests Rs. 10,000 at the beginning of year 1, it would take him 10 years to triple this sum at compound interest of 12% p.a. During the same time, the amount will double when invested at the rate of 8% (a rate at which traditional instruments yield returns, such as PPF, FD, RD, and more).

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