Power of Compounding Calculator

A compound interest calculator can help you calculate how much wealth you can generate if you invest a specific amount of money for some time with the help of compounding interest. Compounding interest enables you to have passive earnings on your investment, hence the term ‘Power of Compounding’. Mostly, banks and other financial institutions credit compound interest. Savings and investment plans like bank FDs and ULIPs offer a compounding Rate of Interest.

The power of compounding is essentially an act of 'adding interest on interest. Your initial investment will generate earnings from the initial principal sum of money and the accumulated earnings from previous compounding periods. It enables you to grow your wealth exponentially.

The compounding interest calculator simplifies the overall compound interest calculation process. Thus, you can use these calculators to estimate the interest on your investments.

You can use the following formula to estimate the future value (FV) of an investment based on the compound interest concept:

FV = PV x (1 + i)n

Where,

• FV = Future value
• PV = Present value
• i = Periodical interest rate
• n = Number of periods

(This is the power of compounding, which determines the growth)

It considers the current value of the asset, the annual interest rate, and the frequency of compounding (i.e., the number of compounding periods) per year, and the total number of years.

The power of compounding is the principal action of reinvesting your earnings from an investment in the same instrument. So, while investing, it pays to stay invested and not withdraw your savings for a long time. But when you borrow money, you must repay your loan regularly.

Compounding interest on saved money grows your wealth. This is why experts recommend starting a SIP the moment you take a loan such as a home loan. By the time you repay it, you will have a house and a large sum of money at your disposal.

For example:

If you borrowed Rs 20 lakhs at 10% p.a. your EMI would be Rs 19,300, and you will end up repaying about Rs 47 lakhs in total. Out of which Rs 26 lakhs is the interest. But if you also invest about Rs 6,138 with your EMIs, you will invest only about Rs 15 lakhs and receive an interest of Rs 32 lakhs.

For a total outflow of Rs 25,500, you not only recover your outgoing wealth but also have an asset.

Consider that you and your closest competitor are involved in the same trade. Both of you started at the same time with the same amount of money.

However, you can clear your stock within five days, while your competitor takes seven. If you made Rs 10,000 on every stock-out, you would’ve made Rs 60,000 in a month, while your friend will take about two months to make the same money.

This is how compounding works. If you increase the frequency of compounding, you can expect higher growth for your money. For example, a bank FD, which pays 8% p.a. quarterly compounded interest is going to grow your money faster than a bond fund paying 8% p.a. interest compounded annually.

Thus, if you want to invest for a comfortable retirement or a large financial goal, start early.

With more compounding for interest, your investments can grow better over a longer period

A compounding interest calculator can simplify your investment calculations. The calculator helps you understand the effect of investment period and interest rates on your invested money.

The simple online calculator offers many other benefits as listed below:

• Calculations Made Easy

  The power of compounding calculator is simple to use. You can select the values for different parameters, and the calculator will do the rest for you.

• Helps Plan your Money & Future

  It helps if you know how much money you will need and when. Or have answers to the questions like, if I invest this much at this rate how much money I will have in a few years. If you are planning to invest in a savings plan, you must know how much money you will be getting at the end of the policy term.

• Compare Different Investment Options

  You can use the rate of return and other parameters from the investments you are considering and estimate the future values of your investment.

• Create and Draw Conclusions from Scenarios

  The power of compounding calculator is a very flexible and easy tool to work with. Thus, creating multiple investment scenarios and giving wings to your imagination is not a difficult task.

• Increase your Savings

  The power of compounding calculator can motivate you to save and invest more. When you see how a small amount of money invested for the right amount of time can turn into a huge sum, you are unlikely to ignore the temptation to save more.

• Completely Free of Cost

  The best part of the calculator is, perhaps, the cost of using it. It virtually nothing, even time is a nominal investment when you are using it, as the calculations take only a fraction of a second to complete.

The power of compounding is responsible for growing tiny investments into substantial corpus over time. Those who understand it and how it works know how money makes more money.

Combine compounding interest with regular savings and you will see your financial journey following an upward trajectory. The exponential growth offered by this has the potential to set you free from the need to work for money.

• Start Investing Early

  Starting early is the foundation for growth. Early investment will give you a higher growth benefit. The power of compounding works better as your investment period increases. Since the timeline for your financial goals is static, investing early is the only way to increase the effect of compounding.

  The earlier you invest, the more time you will have to grow your money.

• Control your Expenses

  You may be wondering, is investing a small amount valuable enough? Of course, it is. First, your small investment made a few years back can beat the bigger investments made later.

  Second, if you can manage your expenses well, you can increase this small amount. Thus, after early investment, spending control becomes important.

  One way to achieve this is by budgeting. You can control, limit or postpone unimportant expenses. Remember, that every penny saved now, will become a source of future income.

• Invest Wisely

  Saving money is not enough. Your journey to compounding interest will start once you invest. Your choice of investment will depend on three factors:

  • Investment amount
  • Investment tenure
  • Risk appetite

  While you take care of these three, another aspect that matters is tax. However, all you need to do is to use a tax-saving investment wherever possible. One warning sign you must be mindful of is going for higher returns. Remember, while you can manage risk to some extent, returns are always unpredictable.

• Invest Patiently

  Compounding relies on the idea of reinvesting. Thus, for maximum benefit, the interest should be reinvested. It is possible if you do not withdraw anything from the investment pool.

• Financial Discipline

  Your income is regular, and so should be your investments. Regular, and disciplined investments provide you with an edge with compounding interests.

  • Invest regularly even if a small amount
  • Invest for a long period
  • Leave your investments untouched till maturity

  Such discipline will help you maximise your benefits from the power of compounding.

• Start Investing Today

  Time is important in the growth of an investment. The more time you give to your investment, the higher the growth you get. For example, 20 years from now Rs. 100 invested today will be Rs 673 and Rs. 200 invested 10 years later will be Rs 519 at 10% p.a.

  Learn the - best ways to invest money.

• Habit of Investing

  Investing is a habit you need to develop. Rs. 100 p.m. would go a long way in building wealth than Rs. 1000 invested once in a few years. Also, habits develop over time. So, if you are not saving, you will develop a habit of spending and vice versa.

• Time is Important

  Time is the biggest influencer of compounding growth in investments. So, unless it’s an emergency, you should let the investments grow without making any withdrawals.

• Compounding Interval

  Pay attention to the compounding intervals (compounded quarterly or annually), especially if you are a safe investor. More frequent compounding is often better than lower frequencies.

  	With Annual Compounding	With Quarterly Compounding
  Growth of Rs 100 in 7 years at a 7.5% p.a. rate of interest	165.90	168.23

• Keep Up the Investments

  Your income defines your lifestyle and financial goals. So, it is only reasonable that your investments keep up with the growth in your income. Make sure to register the increased income with investments as well, i.e., if your income grew by 10%, so should your regular investments.

Time is even more important than the amount of your investment. Even if you start small, staying invested will put you ahead of short-term investors.

Consider the following example, where two friends who have an identical financial situation but end up with completely different financial results:

• Ram starts investing Rs. 5000 p.m. at the age of 30 and continues till the age of 60.
• Shyam starts investing at the of 46 but invests Rs. 10,000 p.m. He continues to invest till the age of 60.

If both will earn a rate of interest of 8% p.a., who do you think should have more money at the age of 60?

Understand the difference between short-term and long-term investment.

ULIP offer multiple ways to use the power of compounding on your investment:

• Invest Regularly

  You can invest monthly, quarterly or annually in ULIP. The best way to invest is to match the investment frequency with your income and use auto-debit.

• Invest for Longer Time

  ULIP allow long-term investing. The investment tenure in ULIP can range from 5 years to 99 years of age.

• Bonus Additions

  ULIPs like Canara HSBC Life Insurance Invest 4G offer bonus additions to long-term investors. These bonuses add to the compounded growth of your portfolio.

• Automated Portfolio Management

  When you invest in equity market funds, managing your risk is important for generating returns. ULIP allow you to manage your risk even when not active. Portfolio management strategies in ULIPs will automatically manage your risky portfolio as per market performance.

This calculation is generated on the basis of the information provided and is for assistance only. And is not intended to be and must not alone be taken as the basis for an investment decisionThe calculations mentioned above take into consideration an assumed rate of inflation of 8%. #The current costs of education mentioned above are approximate values. The end value displayed is on the basis of the information provided and is for assistance only. It is not intended to be and must not alone be taken as the basis for an investment decision. *A 30 years old healthy male can start the plan with a premium payment of Rs. 4000 per month with a policy term of 15 years. The total assumed benefit @ 8% would be Rs 11.43 Lakhs and at an assumed rate of return of 4% p.a., the total benefits would be Rs 8.33 Lakhs. Values are illustrative and actual benefit may depend on number of factors, including future investment performance. Advt No. W/II/1187/2015-16.This calculation is generated on the basis of the information provided and is for assistance only. And is not intended to be and must not alone be taken as the basis for an investment decisionThe calculations mentioned above take into consideration an assumed rate of inflation of 8%. #The current costs of education mentioned above are approximate values. The end value displayed is on the basis of the information provided and is for assistance only. It is not intended to be and must not alone be taken as the basis for an investment decision. *A 30 years old healthy male can start the plan with a premium payment of Rs. 4000 per month with a policy term of 15 years. The total assumed benefit @ 8% would be Rs 11.43 Lakhs and at an assumed rate of return of 4% p.a., the total benefits would be Rs 8.33 Lakhs. Values are illustrative and actual benefit may depend on number of factors, including future investment performance. Advt No. W/II/1187/2015-16.