Compounding Power / SIP :Big investors of the stock market say that if you cannot stay in the market for 10 years, then why even think of entering the market. They always advise to invest in the market with a long term goal in mind. They say that after investing, one should wait instead of looking at the returns again and again. A good investment gives better returns in the long term. Keeping the investment period long increases the guarantee of higher returns. At the same time, one also gets the benefit of compounding on long term investments. They emphasize that if you understand the power of compounding correctly, then no one can stop you from becoming rich.
You must be wondering what is the power of compounding and how to get its benefits. You must have heard about many schemes that some schemes are giving 8% annual compounding and some schemes are giving 10% annual compounding returns. It can be understood simply that reinvesting the money you earn on investment is called compounding. In this, you get interest on the principal amount as well as the interest.
Capital Gains Tax: Tax rules on earnings from the stock market have changed, now how much LTCG will have to be paid, STCG and STT also announced in the budget
How interest is added on interest
You can understand it like this that you have invested Rs 10,000 somewhere and that scheme gave you a return of 10% per annum. So after one year your money will become Rs 11000. For the next year, you will get interest not on Rs 10,000 but on Rs 11,000. In this way, the process of getting interest on interest will increase. Compounding is a big way to increase your investment. If you also want to take advantage of this, then investing in mutual funds through SIP is a better option. Understand the benefit of compounding from the chart…..
Calculation: On investment of 5 years
Monthly SIP: 5 thousand rupees
Estimated return: 12% p.a.
Investment period: 5 years
Your total investment: Rs 3 lakh
Total value of SIP: Rs 4.1 lakh
Profit: Rs 1.12 lakh
Mutual Fund: 5 equity schemes giving high returns in every phase, top performance for 3, 5, 10, 20 years, made you a millionaire in exchange of Rs 13 lakh
Calculation: On investment of 10 years
Monthly SIP: 5 thousand rupees
Estimated return: 12% p.a.
Investment period: 10 years
Your total investment: Rs 6 lakh
Total value of SIP: Rs 11.6 lakh
Profit: Rs 5.6 lakh
Calculation: On investment of 15 years
Monthly SIP: 5 thousand rupees
Estimated return: 12% p.a.
Investment period: 15 years
Your total investment: Rs 9 lakh
Total value of SIP: Rs 25.2 lakh
Profit: Rs 16.23 lakh
NPS: 40 lakh funds will come in hand as soon as you retire, along with 50 thousand rupees pension every month, save 100 rupees daily as soon as you get a job
Calculation: On investment of 20 years
Monthly SIP: 5 thousand rupees
Estimated return: 12% p.a.
Investment period: 20 years
Your total investment: Rs 12 lakh
Total value of SIP: Rs 50 lakh
Profit: Rs 38 lakh
How much benefit
Where on an investment of 20 years the SIP value will be Rs 50 lakh and the total profit on investment will be Rs 38 lakh.
The SIP value on 15 years investment will be Rs 25.2 lakh and the total profit on investment will be Rs 16.2 lakh.
The SIP value on 10 years investment will be Rs 11.6 lakh and the total profit on investment will be Rs 5.6 lakh.
The SIP value for 5 years investment will be Rs 4.1 lakh and the total profit on investment will be Rs 1.12 lakh.