Power of compounding.(10000 to 3.5 cr. )
Friends, when common people like you and I or retail investors Think about ₹1cr, it feels very strange to think about it We often think that collecting ₹1cr or a few lakhs is impossible for us but today I will tell you about such a secret of money that can help us overcome this fear of ours if we utilize it properly and regularly Save a little and invest it at the right place for a long time then no amount is big for us to achieve .
What is compounding and how it works?
We must've heard the term compounding many times But we can never fully understand what it means And no one can explain it to us in simple terms So, today i will be able to inform you in very simple terms .
What is compound interest , simple interest and compounding means and the way it can make a little amount to a really big amount ?
Now, allow us to understand compounding in very simple terms Consider that there are two friends A and B Both of them had a touch money After spending tons of cash , they saved a touch And thought that they ought to invest the cash somewhere in order that they will get some returns A invested in bank A From where he got simple interest And B invested in bank B from where he got compound interest Both friends made an investment of ₹100 And both banks said that they would get a 10% return annually Now, let us see how that investment performs in the coming years If I talk about the first year, So, in the first year, they both made an investment of ₹100 Now, after the first year, bank A Gave a 10% return on ₹100 so he got a return of ₹10 So, after a year, his money increases to become ₹110 In the same way, if I talk about B, then B made an investment in bank B Which also gave a 10% return but on compound interest So after the first year, B also gets a ₹10 return on his invested value Now you must be thinking that after the primary year, they both got an equivalent return So, there's no difference between interest and interest But this is often not true because within the coming time, there will be a lot of difference in their returns
Now, I will talk about the second year If, I talk about the second year, Then bank A will give A The same return even in the second year If I explain this to you in simple terms, His invested value was ₹100 So, in the second year, he will get a 10% return on ₹100 So, he will get a return of ₹10 again So his investment will increase and become ₹120 Now, I will talk about B the ten return that B gets within the second year won't get on ₹100 But he will get the return on ₹110 this is often the essential difference Which we can see in compounding So, the return that B gets in the second year will be a return of ₹11 But not a return of ₹10 So, the small difference that you simply can understand here That within the second year The return that A got was still on ₹100 But the return that B got wasn't on ₹100 but He got it on ₹110 Continuing to do this process, when I reach the fifth year, then in the fifth year, The return that A gets Is the same as the first year He made an investment of ₹100 He gets a return of 10% So, even in the fifth year, He gets a ₹10 return on his invested value So, his total money increases and becomes ₹150 But, now let us talk about compound interest, about B's investment So, B's investment like I told you, every year The interest that he gets is not on ₹100 But on the previous year If I talk about the fifth year, The return that he gets in the fifth year, He gets it on ₹146 and not on ₹100 So, in the fifth year, the compound interest that he gets, Will be of ₹15, and not of ₹10 So, his investment value increases to become ₹161 And A's increases to become ₹150 So, notice the different here, the difference is of ₹11 in both of their investments Now, ₹11 must sound like a very small amount But I will tell you a small concept in percentage That the return A got in the fifth year was of ₹10 The return that B got in the fifth year was of ₹15 So, B's return is 50% more than ₹10 So, only in five years, the return he got, Was more than 50% For those of you who are still confused, I will explain this concept again in very simple terms What happens in simple interest is that, you get the return on the money invested But in compound interest, the money that you invest And after the first year, the return you get, You will get a return on that in the next year Which means that the money keeps multiplying and becomes a very big amount In the coming few years Now, let us talk about investment If, I, every month for the next ten years Invest only ₹10,000 At a place, that will give me a compounding return of 12% So, what was the investment you made? You made an investment of 12 lakhs But that investment value will increase to become how much? That value will increase to become more that 23 lakhs now you know how much gain happened Your gain was more than 11 lakhs Friends, you invested 12 lakhs and your gain was 11 lakhs This is the power of compounding In this way, with a little savings we can make a lot of money What I spoke about right now, I only spoke about ten years But if your age today is around 25 years Then until you retire, you can do a little savings of ₹10,000 every month So, I will tell you, that every month by making a savings of ₹10,000 And invest it in an asset like this, For the next thirty years, Then how much your money will increase to become Your money will reach to such an amount Which we only dream of, maybe in crores Now let me tell you what the actual value will be Friends, this is that magic figure Your investment of ₹10,000 for the next thirty years Will increase to become around 3.5cr or maybe more than that I had told you in the beginning Our dream is to collect 1cr rupees But, if we make an investment of only ₹10,000 For the next 30 years Then the investment value be will only 36 lakhs, which was the actual value But because of returns, the value will become more than 3.5 crores Which means that you made an investment of only 36 lakhs But, just your gain is 3.2 crores So, the value increases to become more than 3.5crores This is the secret of money This is a small concept Which, if used at the right time and in the right way Then your small savings, can in the coming time, turn into crores Now, friends, you have understood compounding.
But along with compounding, there was a small and very powerful concept And that is investment horizon For how long do you make an investment You must already know, that if you mix compounding with a time horizon, a longer time horizon Then compounding is much more powerful As the time duration for compounding increases The value of compounding keeps going up So, take a pledge with me, that from today wherever you invest You will first see how much return you get from there Whether you get simple interest or compound interest Because, friends, simple interest gives you a return on your earned money But with compound interest not only do you get a return on your earned money But in the long run You get a return on your earned money, and get a return on that as well If, after watching this video you feel like you should start investing And in the coming time you want to make a big amount So, you should keep only three things in mind First, Patience for a long term investment Because if you don't make an investment for a long time, then your return will never be good Second You should see what kind of return you're getting, are you getting a simple return or a compounded return Because compounded return is extremely powerful Third You should see in what kind of asset do you want to invest in For which, you have to do a little research Because there is a lot of information in the market If you use that information properly for your benefit You can make your earned money into a very big amount in the coming time Friends.
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