Photo by David McBee on Pexels.com
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 is calculated :
Principal Amount X Rate of Interest X Term of Loan in Years
Compound interest is calculated :
Compound Interest=P×(1+r)t−P
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 :
Principal | 1000000 | 1000000 | 1000000 | 1000000 | 1000000 | 1000000 | 1000000 |
Rate of Interest | 5.00% | 6.00% | 7.00% | 8.00% | 9.00% | 10.00% | 11.00% |
Time in Years | 5 | 5 | 5 | 5 | 5 | 5 | 5 |
Total Amount After Compounding Interest | 1276282 | 1338226 | 1402552 | 1469328 | 1538624 | 1610510 | 1685058 |
Lets see another Table at Different Compounding Interest Rates from 5% to 11 % Per Annum for 10 Years :
Principal | 1000000 | 1000000 | 1000000 | 1000000 | 1000000 | 1000000 | 1000000 |
Rate of Interest | 5.00% | 6.00% | 7.00% | 8.00% | 9.00% | 10.00% | 11.00% |
Time in Years | 10 | 10 | 10 | 10 | 10 | 10 | 10 |
Total Amount After Compounding Interest | 1628895 | 1790848 | 1967151 | 2158925 | 2367364 | 2593742 | 2839421 |
Lets see another Table at Different Compounding Interest Rates from 5% to 11 % Per Annum for 15 Years :
Principal | 1000000 | 1000000 | 1000000 | 1000000 | 1000000 | 1000000 | 1000000 |
Rate of Interest | 5.00% | 6.00% | 7.00% | 8.00% | 9.00% | 10.00% | 11.00% |
Time in Years | 15 | 15 | 15 | 15 | 15 | 15 | 15 |
Total Amount After Compounding Interest | 2078928 | 2396558 | 2759032 | 3172169 | 3642482 | 4177248 | 4784589 |
Lets see another Table at Different Compounding Interest Rates from 5% to 11 % Per Annum for 30 Years :
Principal | 1000000 | 1000000 | 1000000 | 1000000 | 1000000 | 1000000 | 1000000 |
Rate of Interest | 5.00% | 6.00% | 7.00% | 8.00% | 9.00% | 10.00% | 11.00% |
Time in Years | 30 | 30 | 30 | 30 | 30 | 30 | 30 |
Total Amount After Compounding Interest | 4321942 | 5743491 | 7612255 | 10062657 | 13267678 | 17449402 | 22892297 |
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 .
Warren Buffet Documentary : https://www.youtube.com/watch?v=RYHPlLsdW0A
Also See :
Top Finance Documentaries :https://financeloaninsurance.com/top-finance-documentaries/
Monthly Budget Planner : https://financeloaninsurance.com/monthly-budget-planner/
HDFC Bank Buy @ 1637.55 TSL 1616.80 ( Trailing Stop Loss : TSL ) CMP…
Title: Understanding G-Secs: Yield, Interest Rates, Coupon Rates, and Profit Potential Introduction Government securities (G-Secs)…
Artificial intelligence (AI) has revolutionized financial markets , particularly in the realm of algorithmic (algo)…
Short Straddle Options Strategy Theta decay is a concept in options trading that refers to…
Jim Simons the Wizard of Stock Market Jim Simons the is the founder of Renaissance…
Bikaji Foods IPO Detail Primary business of our Company We are one of India’s largest…
This website uses cookies.