Compounding Interest: Usually people invest lakhs of rupees in any business or bank to become rich and earn profit through interest. If there is not much money then it is very difficult to become a millionaire through this formula. In today’s time, most people want to become rich by investing less money. Compounding interest is such a formula of financial term through which it can be very easy to become a millionaire even by investing less money. Nothing can stop you from becoming rich once you understand compound interest.
What is Financial Term Compounding Interest
After investing anywhere, people earn money in the form of returns at the rate of simple interest. After getting compound interest ie compound interest on an amount, it is very easy to double and quadruple this amount. With simple interest, you can get interest only on the principal amount for a certain period of time. On the other hand, in compounding interest, apart from the principal amount, interest can also be taken on the amount received as interest rate. If we say in simple words, then the interest received on the interest itself is called compounding.
You can become a millionaire by investing for a long time
Generally people invest money in any scheme for 5 to 10 years. Apart from getting interest rate every year on this, after the time period is over, you can withdraw all the amount together. On the other hand, through compounding interest, one can easily become a millionaire by investing any amount not for 5 or 10 years but for 20 to 30 years. The most important thing about compounding is the time period. By investing for a short period of time, you can get only a few percent interest on that amount.
Become a millionaire by investing just Rs 1 lakh
If you have only Rs 1 lakh and want to become a millionaire through it, then compounding can be a good option. If Rs 1 lakh is invested for 35 years at 15% simple interest, only Rs 6,25,000 will be withdrawn. On the other hand, if you invest this amount on compound interest ie compound interest for 35 years, then you will get Rs 1,33,17,552.34 lakh back.