Compound Interest Calculator

Compounding is an important concept in finance because it shows the role of reinvestments in building a substantial corpus. Compound interest is the interest calculated on the principal and previously accumulated interest.

This can be understood best with the 'snowball effect'. When a small snowball rolls down a slope, it accumulates more snow and ultimately becomes a large snowball. Similarly, compound interest leads to an exponential growth of your investment by accruing interest upon principal plus interest.

While you can calculate compound interest using complex formulas, it’s better to use our compound interest calculator. Simply enter the respective values here to get the result.

What is a Compound Interest Calculator?

A compound interest calculator is an online financial tool which helps you to calculate returns on investments offering the benefit of compounding. It shows how your investments will grow with time, helping you grow your wealth.

You can use the Samco Compound Interest Calculator to calculate what you will receive at maturity which will help you to make better financial plans.

You have to insert three components in a compound interest calculator to view the results-principal amount, interest rate and investment tenure. Simply enter these details to get results instantly.

How to Use Samco Compound Interest Calculator?

Follow these steps to use Samco’s compound interest calculator:

Step 1: Enter the principal amount.

Step 2: Enter interest rate as well as tenure for which you wish to calculate compound interest. You can type in or drag the slide to enter the values.

The online calculator will display the results onscreen.

This online financial tool is easy-to-use and provides accurate results in no time. Moreover, it is free to use.

You can use it for comparing the returns of different fixed-income investments and preparing an investment plan.

Reasons to Use Samco Compound Interest Calculator

Here are some essential benefits of using our compound interest calculator:

• Provides instant and accurate results: Gone are the days when people had to sit with paper and pen to manually calculate their returns. This online financial tool provides accurate returns for a particular tenure.
• Helps to calculate returns: This online calculator helps to calculate both total returns and annual returns. It is particularly helpful if you need to break up your investments to make financial plans.
• Helps in making plans: A compound interest calculator helps to understand how much of a corpus is needed to fulfil financial goals. It helps you to arrange the required funds with convenience.

How Is Compound Interest Calculated?

As stated above, compound interest is simply interest on accumulated interest. It is calculated by multiplying your initial investment by the annual interest rate plus one raised to the number of years of investment.

You can find out the compound interest by subtracting the principal amount of your investment from its maturity amount. The formula to calculate the amount on maturity is as follows:

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

Here,

P = Principal amount

A = Maturity Amount

r= Rate of interest

n = Number of times interest gets compounded annually

t = Number of years till maturity

This formula will give the total amount received after maturity.

Now, you can use the following formula to find out compound interest:

Compound interest (CI) = maturity amount – principal amount

Suppose you have invested ₹60,000 in a bond at an annual interest rate of 10% for 5 years. Returns generated by the investment in the first year will be ₹6000. For the second year, the interest will get calculated on (60,000 + 6000), i.e. ₹66,000 and it will accrue an interest amount of ₹6,600. Thus the cycle will continue.

Manual calculations are lengthy and time-consuming. Our compound interest calculator makes the task much easier.

What Factors Influence Compound Interest Returns?

Check the factors influencing compound interest returns:

• Time: Investments need time to grow. So, with a longer investment tenure, the possibility of earning massive profits becomes higher.
• Rate of Interest: A high-interest rate will help you to create a large corpus. Even a small increase in the interest rate can result in substantial profits over time due to the effects of compounding.
• Frequency: If the interest is compounded more frequently, it will lead to more returns. For instance, if the compounding is on a quarterly basis, the interest will be much higher than for annual compounding.
• Starting Capital: While it is true that compounding adds interest upon interest, it is also true that the larger your initial investment, the higher will be the returns. In other words, if you invest a huge sum of money, you will benefit more from compounding.

But you can get the same effect by investing smaller sums regularly.

Benefits of Power of Compounding

Here are the benefits of compounding on your investments:

• Multiplies the Principal Amount: With the help of compounding, you can multiply the principal amount by a huge margin across the tenure.
• Improves Return Potential: It increases the return potential in the next cycle, thereby improving your chances to earn higher returns.
• Requires Less Time to Build a Corpus: Investment options offering the benefit of the power of compounding help you to grow your corpus in much less time when compared with investment options with simple interest.
• Specialised Knowledge Not Required: An important benefit is that you don't need specialised knowledge to get its benefit. You can execute the power of compounding to maximise returns from any investment in financial instruments.

How Long Should You Remain Invested to Earn Compounding Benefits?

It is not possible to state the exact time frame a person should remain invested in to maximise their returns. This is because people have different financial goals. Moreover, a person's ability to invest will not match that of another person. Thus, financial objectives and choice of investment should determine tenure.

Other than the above-mentioned factors, the longer one stays invested, the higher will be the returns. Experts recommend starting investments as soon as possible because it will give ample time to grow a substantial corpus.

An example will help to understand this better. Suppose, Amit invests ₹2,00,000 every year in an investment option which offers compound interest of 10% per annum. Let us see how much he will have at the end of 3 years.

This table will illustrate how the power of compounding increases the corpus across a timeframe:

Year	Opening Balance	Investment	10% Interest Rate (per annum)	Closing Balance
1st Year	Nil	₹2,00,000	₹20,000	₹2,20,000
2nd Year	₹2,20,000	₹2,00,000	₹42,000	₹4,62,000
3rd Year	₹4,62,000	₹2,00,000	₹66,200	₹7,28,200

As we can see, Amit makes a total investment of ₹6,00,000. At the end of the 3rd year, its value increases to ₹7,28,200. The total amount of interest that he has earned stands at ₹1,28,200. As we can see, the longer he stays invested, the larger his profits become.

Differences between Compound Interest and Simple Interest

The table below shows the basic differences between compound interest and simple interest:

Simple Interest	Compound Interest
Simple interest is earned on the principal amount only.	Compound interest is earned on the principal as well as previously accrued interest.
The total amount of interest earned is small. The growth of wealth is not so substantial.	The total amount of interest earned is higher. Over time, the wealth accumulated can become substantial.
Investors earn lower returns on principal compared to compound interest.	Due to the benefit of compounding, people earn higher returns over simple interest.
Principal does not change and remains the same during the entire tenure.	Principal increases because interest gets compounded and added to the principal.
It is not dependent upon the frequency of accumulation of interest.	Compound interest depends on the frequency of interest accumulation. When the frequency increases, the amount increases.

Tips to Make the Power of Compounding Work for You

Here are some useful tips to help you reap the benefits of the power of compounding on your investments:

• Begin Early
  When you start your investment journey early, you have a longer timeframe to you’re your wealth. Long investment tenure helps to earn higher returns. It’s alright to start with a small amount. Starting at a young age is what matters the most.
• Consider Equity Investments
  Equities and other market-related investment options offer the possibility to earn inflation-beating returns. With the benefit of compounding, you can increase your wealth considerably.
• Avoid Premature Withdrawals
  Compound interests will yield maximum benefits when you don’t make premature withdrawals. But if you withdraw your money before it can compound, it disturbs the flow of wealth accumulation.
• Track Investment Performance
  It is important to periodically check the performance of your investments with that of the underlying index. If the investment is consistently underperforming when compared to the underlying benchmark index, the power of compounding will not generate many benefits.

The New-Gen Samco app provides all the latest data and price charts to track the performance of your investment.

How Can Samco Help You?

Stock market participants should know the importance of regularly tracking their investments. The new Samco App helps investors to do so effortlessly. It is a robust trading app which helps traders track and beat the market and achieve the best financial performance.

Samco’s technology-driven advanced trading platform offers users the following features:

1. Personal Index: You can create and track your personal index. Then, you can compare it to the returns from the market index and improve your trading strategies accordingly.

2. Peer Comparison Tracker: You can compare the performance of your personal index with that of peers within the Samco community.

3. Net Worth Tracker: Track and compare your net worth within the Samco community.

4. Power Inbox: The power inbox will help you remain updated with personalised feeds, insights and order status.

5. Personalised Feeds: This feature in the trading platform offers personalised market insights and feeds in one place.

6. Social Sharing: You can share the performances and net worth of your investments with your friends and family.

7. Trading Style Analysis: This feature helps you to get categorised based on your trading style and turnover.

8. Star Fund Manager: Compare the performance of your investments with famous fund managers who manage funds of more than ₹20 crores.

Final Words

Compound interests provide you with the opportunity to maximise returns by earning interest on the principal amount plus interest accrued on it over time. The effects of compounding are more pronounced with longer investment tenures and larger investments. A compound interest calculator lets you figure out the total returns you can get from your investments.

To get the full benefit of compounding, it is important to track investments regularly. Our technology-driven advanced trading app helps to track how your investment is performing compared with a chosen benchmark index. The AI-based recommendations of our app will help improve your financial performance and ace the index.

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