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LogoutYou must have heard the term “Power of Compounding “. This concept is based on the mathematical term Compound Interest. In simple words, compound interest is interest on interest.
E.q. 10,000 Rs are invested in a fixed deposit of a bank for 2 yrs at 8% compound interest. Then in the first year principle is 10000 and interest earned is 800 Rs. For the 2nd year, the principal amount is 10800 and interest earned is 864 rs. Thus, at the end of the 2nd year, the total amount received by an investor is more than interest which is earned, not taken out rather invested again. When an investor is being invested in the financial product for the long term, the power of compounding helps to build the wealth.