# How to Create Wealth ? ” Power of Compounding “

How to Create Wealth like Warren Buffet but every one is always searching for the Magic Lamp of Aladdin .

But the Real Magic Lamp of today’s World is the ” Power of Compounding “.Yes its the 8th Wonder of the World.

What is Compounding ? Compounding is earning interest on interest you have already earned on the Principal amount you have invested in Fixed Deposit , Mutual Fund or any other investment. Lets understand by example .

Suppose there are two Individuals A and B . Individual A earns Simple Interest 12 % Per Year and Individual B earns a Compound Interest of 12 % for 5 Years on amount of Rs. 10 Lakh . Rate of Interest 12 % , Amount of Rs. 10 Lakh and Time 5 Years is Same for both.

Individual A Earns Rs. 600000 as Simple Interest and Total Amount is Rs. 1000000 Principal + Rs. 600000 as Interest so amount after 5 Years is Rs. 1600000 .

Individual B Earns Rs.762341 as Compound Interest and Total Amount is Rs. 1000000 + Rs. 762341 as Compound Interest so amount after 5 Years is Rs. 1762341 .

So Individual B Earned 1762341-1600000 = Rs. 162341 more than Individual A.

This is the ” Power of Compounding ” . Earning Interest on Interest + Principal amount.

## Simple Interest

Simple interest is calculated :

Principal Amount X Rate of Interest X Term of Loan in Years

Compound interest is calculated :

​Compound Interest=P×(1+r)tP

P = Principal Amount

r= Rate of Interest

t= Time of Loan

Lets see another Table at Different Compounding Interest Rates from 5% to 11 % Per Annum for 5 Years :

Lets see another Table at Different Compounding Interest Rates from 5% to 11 % Per Annum for 10 Years :

Lets see another Table at Different Compounding Interest Rates from 5% to 11 % Per Annum for 15 Years :

Lets see another Table at Different Compounding Interest Rates from 5% to 11 % Per Annum for 30 Years :

The above examples shows How to Create Wealth more time you give to your Investment the Multiple of Return is Higher that’s the ” Power of Compounding “.

Rs. 1000000 at 5 % Interest after 5 Years= 1276282 10 Years = 1628895 15 Years = 2078928 30 Years=4321942

Rs. 1000000 at 12 % Interest after 5 Years=1685058 10 Years =2839421 15 Years = 4784589 30 Years=22892297

So this Clearly shows ” Power of Compounding ” works when Time given for Investment is Higher and Rate of Return is Higher .That’s How to Create Wealth ? .

So Start Investing Early .