Compound Interest Calculator

See how your investments can grow over time with the power of compounding. Calculate future wealth based on your investment frequency, duration, and expected returns.

Duration for which you will make contributions.

Total duration the money stays invested (must be >= Investment Period).

Duration for which you will make contributions.

Total duration the money stays invested (must be >= Investment Period).

Total duration the money stays invested.

Projected Wealth

Total Investment

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Wealth Gained

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Total Wealth

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Understanding Compound Interest

Compound interest is often called "interest on interest." It means that the interest you earn in each period is added to your principal amount. In the next period, you earn interest on the new, larger principal.

Unlike simple interest, which is calculated only on the initial principal, compounding allows your investment to grow at an accelerating rate over time. The longer your money stays invested, the more significant the impact of compounding becomes.

  • Simple Interest: Interest earned only on the original principal amount.
  • Compound Interest: Interest earned on the principal PLUS accumulated interest.

Key Concepts: SIP vs. Lumpsum

This calculator supports different investment approaches:

  • Systematic Investment Plan (SIP): Represented by the 'Monthly' and 'Yearly' tabs. You invest a fixed amount regularly (e.g., ₹10,000 per month). This helps in disciplined investing and benefits from rupee cost averaging, especially in volatile markets.
  • Lumpsum: Represented by the 'Lumpsum' tab. You invest a large amount all at once. This can be beneficial if you have a significant amount available and market conditions seem favorable, but it carries higher timing risk compared to SIP.

The best approach depends on your financial situation, risk tolerance, and market outlook.

Factors Affecting Your Returns

The final wealth generated depends on several key factors:

  • Investment Amount: Higher principal (lumpsum) or periodic investments (SIP) naturally lead to a larger base for growth.
  • Expected Rate of Return: The annual percentage return significantly impacts growth. Higher returns lead to faster compounding, but often come with higher risk. This calculator uses an *expected* rate, which is not guaranteed.
  • Investment Duration: Time is the most critical factor in compounding. The longer your money stays invested, the more time it has to grow exponentially.
  • Compounding Frequency: How often interest is calculated and added (e.g., annually, monthly). More frequent compounding generally leads to slightly higher returns, though the difference might be small unless rates are very high. (This calculator assumes monthly compounding for SIPs and annual for Lumpsum unless logic implies otherwise).
  • Consistency: For SIPs, regularly making contributions is crucial to achieving the projected goals.

Frequently Asked Questions

What exactly is Compound Interest?
It's the interest calculated on the initial principal amount plus all the accumulated interest from previous periods. Essentially, your interest starts earning its own interest, leading to exponential growth over time.
What is SIP (Systematic Investment Plan)?
SIP is a method of investing where you contribute a fixed amount of money at regular intervals (like monthly or yearly) into an investment scheme, typically mutual funds. It promotes disciplined investing and helps average out purchase costs over time (Rupee Cost Averaging).
Is SIP better than Lumpsum investment?
Neither is definitively "better"; they suit different situations. SIP is generally preferred for salaried individuals as it aligns with regular income, encourages discipline, and reduces market timing risk. Lumpsum can potentially generate higher returns if invested at the right time (market lows), but carries more risk if the market falls after investment.
Is the 'Expected Annual Return' guaranteed?
No, absolutely not. The expected return rate used in this calculator is just an assumption for calculation purposes. Actual returns from market-linked investments (like mutual funds or stocks) can vary significantly based on market performance, economic factors, and the specific investment chosen. Returns can be higher or lower than expected, and investments can even lose value.
What are the risks involved in investing?
All investments carry some level of risk. Market-linked investments are subject to market risk (fluctuations in prices), interest rate risk, inflation risk (returns not keeping pace with rising prices), and specific risks related to the company or sector invested in. It's crucial to understand your risk tolerance and diversify investments.
Can I withdraw my investment early?
Withdrawals depend on the type of investment. Some investments might have lock-in periods (like ELSS mutual funds or fixed deposits). Withdrawing early from others might incur exit loads (fees) or tax implications. Check the specific terms of your investment scheme.
How does inflation affect my returns?
Inflation erodes the purchasing power of money over time. Your real return is the nominal return (e.g., the 12% calculated here) minus the inflation rate. For wealth to truly grow, your investments need to generate returns higher than the prevailing inflation rate.

Disclaimer

This Compound Interest Calculator provides projections based on the data entered and assumes constant returns. Calculations are for illustrative and educational purposes only and do not constitute financial advice or a guarantee of future returns. Actual investment returns can vary significantly due to market fluctuations and other factors. Investment values can go up or down. Consult with a qualified financial advisor before making any investment decisions.