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The Power of Compounding
Everybody wants to be rich with as little investment possible!
Wonder how to convert a moderate
investment into a substantial sum over a
period of time?
The Secret Mantra
Power of
Compounding
Imagine a snowball as it rolls down the hill,
hardens, keeps adding size & picks up pace.
By the time it reaches the bottom of the hill,
we find that it has transformed into a huge,
hard snowball with incredible speed.
The maximum growth happens when
it’s closer to the bottom of the hill!
A simple anecdote
When you put principal to work, it fetches
interest.
When this interest is added to the
principal, from that moment on, the entire
sum of principal and interest earn you the
interest.
Compounding money works in a similar way!
Money deposited in PPF account gets
accumulated over the years and
exempts interest from taxes.
It’s a good example of an account that
creates tax compounding of capital.
Similar is the concept for investments
in land, gold, stocks and so on.
There are ample examples around us
FV = PV (1 + r)^n
Saving more is
important
Higher returns are
better
Earlier you
start, more you
gain
Check the table below to see for yourself!
No. of Years Amount InvestedValue of your
Investment*Growth Multiple
5 years Rs. 3,00,000 Rs. 4,36,710 1.45
10 years Rs. 6,00,000 Rs. 13,15,091 2.192
15 years Rs. 9,00,000 Rs. 30,81, 828 3.42
*Assuming a return of 15% p.a.
Taking many decisions would involve shifting money continuously from one stock to another.
Chances are that we may end up holding a stock
that fails to click.
This slows growth irreversibly.
Is it always so simple?
• Right idea
• Right time
• Stay invested for long
Here’s the trick!
It’s a critical variable
that ensures our
decision to work for us
Long term investments work on the basis of 2 pillars
Power of
compounding
requires well
researched
decisions
Decision
QualityTime
Minimizes the impact of taxes in the long run!
The icing on the cake
And this sums it up well !
Thank You
