Albert Einstein famously called compound interest the "eighth wonder of the world." But what exactly is it, and how does it apply to your investments?
How Compound Interest Works
Simple interest is calculated only on the principal amount. Compound interest, however, is calculated on the principal and the accumulated interest of previous periods. It is "interest on interest."
The SIP Advantage
A Systematic Investment Plan (SIP) allows you to invest a fixed amount regularly (e.g., monthly) in mutual funds. When you combine SIPs with compound interest, the results over long periods are staggering.
- Time is your best friend: Starting at age 25 instead of 35 can literally double or triple your retirement corpus, even if you invest less money overall.
- Rupee Cost Averaging: By investing regularly, you buy more units when markets are low and fewer when they are high, averaging out your cost.
Want to see the math in action? Use our SIP Calculator to project your future wealth based on your monthly investment and expected return rate.