Compounding …do you know ALL about it ? (continued)

Standard

 Maybe, you don’t …..READ ON …………..

We saw last time how Compound Interest  is  calculated compared to Simple Interest.

A few interesting points to discuss on Compounding which some of you may not be aware of  

are as under :

  1. Do you know that the frequency of compounding also plays a role ?

The frequency can be monthly, quarterly, half yearly and yearly.

So you need to check in which instrument / asset class you are investing and find out the frequency of compounding. This will help you to get better returns.

Did you get a smile on your face ?   Bet you did.

Recently, RBI has issued a new circular which says that Savings account interest will be calculated quarterly.

Albert Einstein had truly said well that “ Compounding is the 8th wonder of the world”. It surely is and you have to believe it.

  1. Do you check the rate of return you are getting ?

Sometimes,  we  don’t even realize that 0.5 percent difference on a big amount and for a longer period may increase our returns much more without us knowing it.

We think what difference will 9.0% and 9.5% make ?

 But it does so next time while investing look out for good bargains between banks. 

http://www.moneycontrol.com/fixed-income/banks-deposits/

Check out for all bank Fixed Deposits on the above website and compare interest rates which are favourable  as per your need.  

  1. Compounding works better in the latter years than the earlier years.

If you invested Rs 1000 p.m. for 5 years, then the returns in the 1st 2-3 years do not show a significant increase. It is only over the last few compounding cycles that the returns are seen growing substantially. Its often happens that we don’t have the patience to wait so we pull out the money and complain that we did not get enough returns.

Hence we recommend to invest for a long period.

Something more for you :

http://youtu.be/UmgpMuKyVxs

Check this video out from IDFC Mutual Fund which well explains the concept of Compounding so well.  Listen to the story of the king….its a beautiful story and drives home the concept.

More next time ….

    

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