Albert Einstein once described compound interest as the “eighth wonder of the world,” saying, “He who understands it, earns it; he who doesn't pay for it.”

What is Compounding?

Compound interest or compounding means you not only receive the interest on the basic principal amount that you have invested but also on the interest that keeps getting added to it. It essentially means reinvesting the earnings you get from your initial invested amount instead of spending it elsewhere. For example, if you invest Rs 1000 with 10% interest every year, then your principal amount is Rs 1000 and the earnings, at the end of the year, are Rs 100 (10% of Rs 1000). However, instead of spending it, if you choose to reinvest it, then your principal amount for the next year becomes Rs 1100 (Rs 1000 + Rs 100) and the earnings you get are Rs 110 (10% of Rs 1100), which are Rs 10 more compared to the first year.

Even though this looks like a small amount, it can make a huge difference to your investments, if you let the magic of compounding work over the long term.

Thank you for making up till here. ~~

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