What is a Compounding Calculator and What are Its Benefits?

Compounding is a widely used concept in the field of investment and refers to the multiplication of the earnings on investment over time. The benefit of compounding is visible when you invest a specific amount and agree to reinvest your interest earnings on this amount. Investors investing in mutual funds in India for long durations can reap the benefit of compounding and create wealth to fulfil their long-term goals. The magic of a compounding calculator is that it helps you figure out how much you can make by investing a specific amount and reinvesting the earnings on it for a specific period. Let us find out more about the compounding calculator and the benefits of using it.

Compounding Calculator and SIP

The compounding effect is what helps in creating wealth and generating returns over the long term. This concept is one of the main forces behind the success of Systematic Investment plans or SIP. The answer to how SIP works in mutual funds is that when you decide to invest in SIP mutual funds you agree to invest a particular amount every month or quarter or half-yearly or yearly for a pre-decided period. The earnings on your investments are reinvested so that they too can earn along with the initial invested amount.

Before you decide to choose the SIP option you can use a compounding calculator to calculate the worth of your investment. The compounding calculator helps you find the value of your investment after a specific number of years at a specified interest or return rate. The calculator uses the compound interest formula to calculate the value of your investment on the maturity of a scheme.

For using the compounding calculator, you will need to input the principal amount, the investment period, and the rate of return expected from the investment.

Benefits of Using a Compounding Calculator

The use of the compounding calculator can help you make the right investment decisions and choose options that help you create wealth and fulfil your financial goals. Some benefits of using this calculator are:

• The calculator is simple and free to use. All you need to do is input the value of your investment, the duration, and the expected rate of return.
• The use of this calculator saves a lot of time and effort required to do manual calculations.
• The use of this calculator does away with the probability of calculation mistakes that can result in wrong investment decisions.
• The use of a compounding calculator helps you to compare different investment options and choose the one that suits your and matches your goals.
• The calculator can be used to compare different situations by tweaking the rate or return or the investment amount, or duration to find out the best option.

Since compounding means interest on interest, the longer you stay invested the higher are the returns. To get the maximum benefit of compounding you need to:

• Stay invested for a longer period
• Start early to allow your investment to earn higher returns and achieve your goals.
• Be patient and do not exit your investments early.
• Set your goals and work towards achieving them by investing regularly.

The magic of a compounding calculator can also help you choose the right frequency for your mutual fund SIP and other investments. The higher the frequency of compounding, the more is the accumulation of wealth. Get ready to reap the benefit of compounding by investing in mutual funds in India.