The power of compounding is the process where your investment earns returns, and those returns also start earning returns. Over time, this creates exponential growth.
Compounding means earning returns on both your original investment (principal) and on previously earned returns.
Future Value = P × (1 + r)t
If you invest ₹1,00,000 at 12% annual return:
Notice how growth accelerates over time.
Consider two investors:
Even though Investor B invests more money overall, Investor A often ends up with higher wealth because of longer compounding duration.
₹5,000 monthly SIP for 25 years at 12% return:
This is the power of compounding combined with disciplined investing.
To estimate how fast money doubles:
72 ÷ interest rate = years to double
At 12% return:
72 ÷ 12 = 6 years to double your money.
Compounding is the most powerful tool in long-term investing. The earlier you start, the greater your wealth potential. Time in the market is more important than timing the market.
You can see real growth examples in our guide on how ₹5,000 SIP grows over time.
No. Returns depend on market performance.
Yes. SIP benefits greatly from long-term compounding.
Higher consistent returns increase compounding effect, but higher returns usually involve higher risk.
With disciplined investing and long time horizon, compounding can significantly grow wealth.