Albert Einstein once said “Compound interest is the eighth wonder of the world”.
Compounding refers to the reinvestment of earnings at the same rate of return to constantly grow the principal amount, year after year. It is a technique of making your money work harder for you and is perhaps the most powerful tool that an investor can use to plan for many of their life’s financial goals, like retirement, children education etc
How the concept of compounding works
If Mr. X started investing Rs 10000 every month through SIP let’s see what returns will he generate
|Tenure of SIP/ Rate of Return||8%||12%||15%|
From above example it is clear that by staying invested for longer period, your corpus will earn more returns for you
To get the benefit of Compounding the Investor shall
Start investing early :
People always have a reason for not investing, but there is always a better reason to start investing right away. Starting early than later is one of the best investment decisions you can make.
If you wish to create a healthy portfolio you should be regular in your investments & make additional investments if there is any extra fund available
Stay Invested for Longer Period:
Every good financial advisor practices the mantra – “time in the market is more important than timing the market”.
The longer the period of your investment, the more you accumulate, because of the power of compounding… which is why it makes sense to start investing early.