Investomania

Try to understand it, why and how the compounding is most effective and how it works.

It can be very useful for the investor who invests for a longer period as interest on interest is paid here that boosts the invested amount.
For example..
If you make a fixed deposit of 10000 for 1 year with rate of interest is 10% annually-
You get 11000 at the end of year,in which 1000 is interest.

But if you leave the same Fixed deposit for 10 years with auto renewal,assuming rate of interest is constant,then case is different..
1st year- 10000 + 1000
2nd year- 11000 + 1100
3rd year- 12100 + 1210
4th year- 13310 + 1331
5th year- 14641 + 1464.1
6th year- 16105.1 + 1610.51
7th year- 17715.61 + 1771.56
8th year- 19487.17 + 1948.72
9th year- 21435.89 + 2144.59
10th year- 23581 (Rounded to nearest)

Final amount you will get is 23581,in which 13581 interest is paid.
So,you can see the final amount you will get is more than double of initial amount.

The above scenario is different in case of public provident fund & sukanya samridhi yojana as the amount is added every year the account so the final amount at the maturity is very heavy.

Let us see on different installment amount in ppf at rate of interst of 8%..what is actual amount we invest for 15 years and what we get final amount..
10,000- 1,50,000- 3,11,728
20,000- 3,00,000- 6,23,728
30,000- 4,50,000- 9,35,183
40,000- 6,00,000- 12,46,910
50,000- 7,50,000- 15,58,638
60,000- 9,00,000- 18,70,365
70,000- 1,05,0000- 21,82,093
80,000- 1,20,0000- 24,93,821
90,000- 1,35,0000- 28,05,548
1,00,000- 1,50,0000- 31,17,276
1,10,000- 1,65,0000- 34,40,731
1,20,000- 1,80,0000- 37,40,731
1,30,000- 1,95,0000- 40,52,458
1,40,000- 2,10,0000- 43,64,186
1,50,000- 2,25,0000- 46,75,914

So,did you check out the difference in actual amount and final amount.
Differnce is much bigger than last case.

This is the beauty of Power of compounding i.e why it is known as the 8th wonder of the world..

Fixed deposit
A sum of amount is fixed for a period which earns a higher rate of interest than the rate of interest given in saving bank account.

More beneficial as amount is paid at once, compounding interest is paid here.
Can be renewed in case you don’t want to withdraw the money, interest will paid as per the existing rate of interest.

Recurring deposit
In this deposit you are not supposed to pay the amount at a time,here a fixed amount you have to pay every month till the period of maturity is over.

Final maturity amount is less as compared to fixed deposit, as the amount is paid in installment.
Here you dont have the facility to renew the RD,you need to withdraw the money once the period is over.

First question comes in our mind is what is asset?
So,i would like answer this question first.
Anything which can bring you money is termed as Asset.For example if you are doing business then land is a property that will bring you money on sell for you.

So,we need to create asset in our business or you can say we should invest in such a manner that you create asset for yourself.

Liability on the other hand is something which takes money out of your pocket.
we should try to minimize liability in our business to make more profit.