Compound Interest

Compound interest is the return you earn not just on your original principal but on the interest that has already been credited to the balance. Unlike simple interest — which is calculated only on the starting amount — compound interest feeds on itself, which is why Einstein is (apocryphally) credited with calling it "the eighth wonder of the world." Almost every meaningful financial outcome — retirement corpus, loan cost, inflation damage — is governed by compound growth.

The formula is A = P(1 + r/n)^(nt), where P is principal, r the annual rate, n the number of times interest compounds per year, and t the number of years. Example: ₹1,00,000 at 10% for 30 years grows to ~₹17.4 lakh with annual compounding but to ~₹20 lakh with monthly compounding — the same rate, just more frequent rests. More dramatically, ₹5,000/month saved for 40 years at 12% grows to roughly ₹6 crore; the same amount saved for just 20 years grows to only ₹50 lakh. Time, not rate, is the dominant lever.

In India, banks must quote fixed-deposit interest on a quarterly compounding basis, while loan EMIs use monthly compounding. Mutual fund NAVs reflect continuous compounding of underlying asset returns.

Use our compound interest calculator or SIP calculator to see how compounding frequency, time, and contribution amount interact on your own numbers.