Investing Basics Beginner

Compound Interest

💡 In plain English: Your money earns interest, then that interest earns MORE interest — a snowball effect.

Definition

Interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest, it grows exponentially over time.

📌 Real-World Example

₹1,00,000 invested at 12% p.a. compounded annually becomes ₹1,12,000 after year 1, then ₹1,25,440 in year 2 (12% on ₹1,12,000). After 20 years: ₹9,64,629.

🔢 Formula

A = P(1 + r/n)^(nt)
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Related Terms

Simple Interest
Interest calculated only on the original amount you deposited — no...
Expense Ratio
The annual fee a mutual fund charges to manage your money — lower...
XIRR (Extended Internal Rate of Return)
Your actual annualised return when you've made multiple...
Rule of 72
Divide 72 by your annual return to find how many years it takes...
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⚠️ Educational Content: All definitions and examples on this page are for educational and consultancy reference purposes only. They do not constitute financial, legal, or investment advice. Moneykar is not registered with SEBI, CBUAE, SCA, or any financial regulator. Consult a qualified professional before making financial decisions.

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