### Magic of Compounding

Luckily for us, we do not need the intelligence of albert Einstein to understand the power of compound interest! This simple concept is taught in high school.

**Here is an example:**

- Imagine you invest Rs. 10000 for 10 years. The rate of interest is 10% per year
- At the end of year 1, you will earn Rs. 1000/-. Thus your invested amount will grow to Rs. 11000/-
- At the end of year 2, you will earn Rs. 1100/-… and so on.
- Finally, at the end of year 10, you will earn Rs. 2358/- for that year, while the initial sum of Rs. 10000/- will grow to around Rs. 25940/-

Basically
it means that when you invest for long periods of time, you start earning
interest on interest. On the other hand, if you were earning **simple interest**,
you would have only earned a flat sum of Rs. 1000/- per year for 10 years and
the total amount would have grown to Rs. 20000/-

**The difference of Rs. 5940/-
is because you have earned interest on interest.**

**In a nutshell, compound interest is the magic of earning interest on
interest.**

Amazing, isn’t it ?

Here is an example of how compound interest can convert smll smavings into large numbers:

**Just Imagine this:** You are a young 20 year old “branded”
coffee lover.

Now, assume one day you opted to drink the neighbourhood Udipi restaurant coffee, costing Rs. 25/- over the fancy one, costing Rs. 125/-.

Further, you invested the difference of Rs. 100/- at 15% per year for the next 40 years. Can you estimate how much this Rs. 100/- would grow to ?

**The answer is
Rs. 26786 !!**

Now Imagine you saved and invested Rs. 100/- everyday. Do you still desire that fancy coffee?

**There is a
simple and sure formula to get rich. Save and Invest early and let the magic of
compounding do the rest.**