The 1st Turn on the Journey ….


Let us start with at the 1st turn of the journey and follow some ground rules if you have to know how to go about investing in today’s times… can be a woman of any age, background that does not matter….its like going to kindergarten …all have to go through the ABC….the building blocks.

What is the 1st thing that comes to you when we start investing….?

We need a basic thing as a Savings Bank Account …I am sure most of us have….but if you don’t that is the beginning….

If you have a Savings account, how often do you use and do you put in all your surplus money in there.

Normally, it is the father, spouse or brother who would be handling the bank accounts.  Maybe, they do. But we encourage to open a separate Bank account which you operate and let your surplus money be it your salary, your inherited money, your extra pocket money, etc  and let that accumulate.

Surplus money or investible surplus ( you will come across this term quite often while dealing with bank personnel).  It only means  surplus you have left over after meeting your commitments and expenses.

When you have extra money lying in your bank account,  a lot of us let it lie in the account without doing anything about it. You know how much we get on a Savings Bank account  : about 4%. Some banks are offering maybe more like 6% but those are very few.

Hence, don’t you want to earn more….of course . So what does one do ?

You park your surplus money in a Fixed Deposit  for the period which gives you a higher rate of interest. You can go online and check which banks are offering high interest rates.  So, go and open a Fixed Deposit.

If you already have Fixed Deposits, have you checked if your interest is simple or cumulative.  Which option have you chosen ?

Are you thinking what have you ticked in the form ?  A lot of us don’t fill the form, we only sign and leave it to the bank staff to fill the details. What we are doing at this time is giving the control to the bank employee to decide what option to choose. And we end up many a time, not knowing what has been finally chosen.  Even if you do via netbanking, we just tick many a time without really thinking through.  

So you may think, what is the big deal ?

Let us take an example :

Let’s say you have about Rs 10,000 to invest for a period of 1 year at the rate of 10% p.a.

You choose without really knowing the implications in detail.

The option you choose is Simple interest and the Interest gets credited quarterly to your Savings account. Hence every quarter, Rs 250 will be credited to your Savings Account for 4 quarters.

Let us see the chart below :

Sr. No

Fixed Deposit Amount

Interest @10% p.a payable quarterly in Savings  Bank Account



Principal : Rs 10000 (at the beginning of the year )

250 at end of Quarter 1 goes to Savings Account




250 at end of Quarter 2 goes to Savings Account




250 at end of Quarter 3 goes to Savings Account




250 at end of Quarter 4 goes to Savings Account



Principal of Rs 10000 remains as is.


As you can see in this example, the Principal remains as is on maturity. Over a period, the Value of Rs 10000 decreases. (This will be explained in detail later).

The interest of Rs 1000/- has been credited to the Savings Account which would lie in the Savings Account or would get spent. The amount is too small to get reinvested elsewhere.



Rs 1000 total interest earned.


Total Amount receivable on maturity : 10000 + 1000 = 11000

What we have seen here is Simple Interest calculation….which I know most of you maybe aware of.  We learnt in school in all languages. But we tend to overlook this simple detail.

On the other side, we talk of compound interest.  It is when we allow the interest to be credited back to the principal and take the cumulative amount payable on maturity.  

In our example above, the total amount payable on maturity would be Rs 11,038 which works out to an effective rate of  10.38.

You may think it is only Rs 38 difference but if you increase the amount and the period, the compounding would grow even higher.  Isn’t that great ?  

This is how money works for you…

So, now you go and check in all your Bank Fixed deposits…is it simple or compound interest that you are earning……of course, if you need the cash flow to come at regular intervals then it is fine.

But remember, I believe that Rs 200 is better in my pocket than somebody else’s pocket….

Until next week, wish you all and your families a Merry Christmas !!!!



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