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The 8th Wonder — Compound Interest

See why time is the most powerful ingredient in wealth creation, and how small monthly SIPs can become large corpses over decades.

Learning Goals

  • Understand the difference between simple and compound interest.
  • Use the Rule of 72 to estimate doubling time.
  • Compare early versus late investing with real Indian examples.

Core Concepts

Compound Interest
Beginner

Compound interest means you earn returns on your original investment plus the returns already earned. Over time, this creates a hockey-stick effect.

A = P(1 + r/n)^(nt)
Rule of 72
Beginner

This simple rule estimates how many years it takes for money to double by dividing 72 by the annual rate.

💡 Think of it like a countdown timer for your money's doubling speed.

Indian Market Context

A ₹5,000 monthly SIP starting at age 22 can outgrow a ₹10,000 SIP starting at 32, despite investing less total money.

Hands-On Calculators

SIP Future Value Calculator

Total Invested

₹6,00,000

Future Value

₹11,61,695

Wealth Gain

₹5,61,695

Future Value Calculator
Future Value₹3,10,585

Gain: ₹2,10,585

Rule of 72 — Doubling Time

Time for money to double

6.0 years

Formula: 72 ÷ 12% = 6.0 years

Behavioral Insight

🧠 PRESENT BIAS: People prefer ₹5,000 now over ₹3.24 crore in the future. Automating your SIP is the cure.

From History

The 8th Wonder — Compound Interest

Sensex rose from 100 in 1979 to 80,000 in 2024, showing what long-term compounding can do in India.

Take the Quiz

Module Quiz
If you invest ₹1 lakh at 12% per annum, how many years will it approximately take to double?
Compound interest earns interest on the interest already earned.
Why does starting earlier matter more than investing a larger amount later?