Index Fund Corner
Sponsored
| Scheme Name | 1-Year Return | Invest Now | Fund Category | Expense Ratio |
|---|---|---|---|---|
| Axis Nifty 50 Index Fund | +32.80% | Invest Now | Equity: Large Cap | 0.12% |
| Axis Nifty 100 Index Fund | +38.59% | Invest Now | Equity: Large Cap | 0.21% |
| Axis Nifty Next 50 Index Fund | +71.83% | Invest Now | Equity: Large Cap | 0.25% |
| Axis Nifty 500 Index Fund | — | Invest Now | Equity: Flexi Cap | 0.10% |
| Axis Nifty Midcap 50 Index Fund | +46.03% | Invest Now | Equity: Mid Cap | 0.28% |
It usually works for any sort of investment type but requires patience and time to achieve the desired target amount. This means the longer the money is invested, the more time it will have to compound, and the greater will be the growth potential.
Formula
To calculate compound interest, experts usually take the help of this formula — A = P (1 + r/n)^(nt)
Here, A stands for the future value of the investment, including the total interest; P is the principal amount, which is the initial investment; r is the annual interest rate; n is considered the total number of times interest is compounded every year; and t stands for the number of years the money is invested.
Through this formula, you can take into account the initial principal amount as well as the accumulated interest over a while, depending on the compounding frequency.
What is the role of compounding in wealth creation?
In simple terms, compounding mainly refers to the act of ‘earning interest on interest’, which means the money initially invested by an individual will generate earnings from the principal amount as well as the accrued earnings from past compounding periods.
As a result, this growth, over a while, helps people increase their wealth and help them achieve their financial targets.
Here are some ways through which compounding helps you build wealth:
- Maximising returns
The thumb rule to avail the power of compounding is that individuals should remain invested for a longer tenure, allowing the returns to compound. In basic terms, the longer you stay invested, the greater the compounding effect.
Starting at an early stage and adding to your investments on a consistent basis over a period of time further amplifies the benefits of compounding.
- Tackle Inflation
With time, inflation erodes the purchasing power of money. So, it becomes crucial to invest your money in assets that can help you generate higher returns than the inflation rate.
- Financial goals
With the compounding booster, you get major help in achieving your long-term financial goals, which include saving for retirement or buying a new house. Further, these investments help you to accumulate more than you require, thereby creating a cushion.
(Edited by : Sudarsanan Mani)
First Published: Dec 17, 2024 1:45 PM IST
