Compound Interest Calculator - HDFC Life

The rate at which compound interest accumulates interest depends on the frequency - higher the number of compounding periods, higher will be the compound ... OnlineBuySupport Call(AllDays,from9amto9pm,Tollfree) 1800-266-9777 Requestcallback(MissedCall) 1800-315-7373 Call(ForNRIcustomers,AllDays,Localchargesapply) +91-8916613503 Email [email protected] SMS SMSLIFEto56161 BranchLocator Locateabranch Clickhere PolicyHolderServices Whatsapp +918291-890-569 Call(MontoSat,from10amto7pm,Localchargesapply) 1860-267-9999 Call(MontoSat,from10amto7pm,STDchargesapply) 022-68446530 Email [email protected] NRI-Email [email protected] FundPerformanceCheck Call(MissedCall) 0800-0006–609 Tools&Calculators CompoundInterestCalculator CompoundInterestCalculator Compoundingiswhenyouearninterestonyourinvestmentoveraperiodoftime,duetowhichyouwitnessagrowthonyourearnings.Powerofcompoundingenablesyourearningstogrowasyourinvestmentsgrow.Here'showyoucanunderstandthisbetter.Aninterestisaddedontheinitialinvestment(principalamount),thisinterestisthecompoundinterest.Sincetheamountwouldbeaddedtotheinitialinvestmentandthenewinterestiscalculatedonthisamount,theinvestmentwillcontinuetogrowasthisprocesswouldbeconsistentallthroughouttheinvestmentperiod. Amountyoucaninvesttoday₹ Amountyouwanttoinvest₹ Monthly Yearly Numberofyearsyouwanttoinvestfor 20 599 Numberofyearsyouwanttostayinvestedfor 20 599 YouexpecttheAnnualRateofReturnstobe 8 1%30% YourReturns After20years,yourinvestmentof₹7.50lakhswill growto₹19.27lakhs*@8%p.a. *Thiscalculatorisprovidedtoenableyoutoplanyourretirementandaidanestimatefortheretirementbenefit.Itisdesignedonlyforinformation/educationpurpose.Theresultspresentedbythiscalculatorarehypotheticalandbasistheinformation/inputsprovidedbyyouandguidesyoutoplanyourretirementandimportanceofsavingsforyourretirementbenefits.Kindlydonotconsiderthisasaninvestmentadviceordirectorindirectsolicitationfortheproductortheperformance.Whileutmostcarehasbeenexercisedinpreparingthiscalculator,HDFCLifeInsuranceCompanyLimitedoritsdirectors,employees,affiliatesorrepresentativesdonotwarrantthecompletenessorguaranteetheaccuracyoftheinformationandwillnotberesponsibleforanyliabilities,losses,damagesarisingoutoftheuseorinrespectofanythingdoneinrelianceofthecalculator.Thecalculationsprovidedthroughthiscalculatorshallnotdirectlyorindirectlybeconstruedassolicitationofschemetheperformanceofthescheme.Requestyouconsultyourfinancialadvisorbeforemakinganytypeofinvestment. PLANYOURINVESMENT FrequentlyAskedQuestions 1 HowtousetheCompoundInterestCalculator? Ifyou’rewonderingwhatkindofinterestrateyouneed,youcancheckoutour compoundinterestcalculator.Tostart,youneedtoknowhowmuchmoneyyouhavetoinvestupfront.Inputthisnumberinthegivenbox.Next,ifyou’dliketoaddmoremoneytoyourinvestmentatregularintervals,youcanchoosetodoso.Typeintheamountyou’dliketoaddandchoosewhethertheywillbemonthlyorannualpayments.Next,decidehowmanyyearsyou’dliketoinvestfor.Willyoubemakingtheregularpaymentsfor5years,10yearsor25years?Youcaneithermovethesliderorsimplyinputthenumberofyearsintheprovidedbox.Onceyou’redoneputtingmoneyinyourinvestment,youcanchoosetoremaininvestedforalongertime.Thismeansthatyourinterestwillcontinuetocompoundandyourmoneywillgrowovertime.Whenselectingthenumberofyearsyou’dliketostayinvestedfor,it’simportantthatit’smorethanthenumberofyearsthatyouwanttoinvestfor.Again,youcaneithermovethesliderorinputthenumberdirectlyintheprovidedbox.Ifyouhaveanunderstandingofhowmuchmoneyyouwouldlikeattheendoftheinvestmentterm,youcancheckthegraphontheright-handsideofthepage.Asyouchangetherateofinterest,eitherbyshiftingthesliderorinputtingnumbersinthebox,you’llseehowmuchmoneyyoucanexpecttoearnattheendofyourinvestmentterm.Thiswillgiveyouaclearindicationofwhatisthebestrateofinterestforyoutochoosebasedonyourinvestmentcapabilities,theamountoftimeyouwanttoinvestforandtheamountofmoneyyouhopetohaveattheendoftheinvestment. 2 WhatIsDaily,Monthly&EarlyCompounding? Whenitcomestochoosingbetweensimpleandcompoundinterest,compoundinterestwillalwayswin.But,there’sawaythatyoucanmakecompoundinterestworkharderforyou.Whenyou’rechoosinganinvestmentavenuethatofferscompoundinterest,youcanalsolookathowoftentheinterestiscompounded.Youcanchooseplanswheretheinterestisaccrueddaily,monthly,six-monthlyorannually.Compoundingwillalwaysworkbestwhentheintervalofcompoundingisshort.Wecanunderstandthisbetterwithanexample. Let’ssayMrAhasmadeaninvestmentof ₹10,000forjust3yearsatarateof7%.Iftheinterestiscompoundedannually,he’llendupwith ₹12,250attheendof3years.Ifthecompoundingwasdoneonahalf-yearlybasis,hewouldendupwith ₹12,314andifitwasdoneonamonthlybasis,he’dendupwith ₹12,293. Youcanalsooptfordailyinterestaccrual,whichmeansyourinterestwillbecompoundedeverysingleday.So,everydayyouwillearnanewamountbasedontheinterestaddedtoyourinitialinvestment.Tomaximisethebenefityoucanenjoyfromacompoundinterestinvestment,it’scrucialthatyoustartsavingandinvestingasquicklyaspossible.Themoretimeyourmoneyhastocompoundandgrow,themoreyouwillendupwith. 3 WhatAreCompoundInterestInvestments? Whenitcomestoinvesting,it’salwaysagoodideatochooseaninvestmentavenuethatallowsyoutoenjoycompoundedinterest.Thisisthemostefficientwaytomaximiseyourreturnsandgetthemostoutofyourmoney.Thereareanumberofinvestmentopportunitiestodaywhereyoucanbenefitfromplansthatcompoundinterestatregularintervals.Atthemostbasiclevel,banksoffercompoundinterest.Theinterestyouearnevery6monthsisaddedtoyoursavings,andforthenextsixmonth,youcanearninterestonthenewamount.Butthisishardlyenoughtohelpyouachieveyourfinancialgoals.Mutualfundsand Unit-LinkedInsurancePlans(ULIPs) aretwoofthemostcommoninvestmentsthatutilisecompoundinterestformulaetogrowyourmoney.Bothinvestmentavenuesworkinasimilarfashion,withthemaindifferencebeingthatULIPsoffertheadditionalbenefitoflifecover.Compoundinterestinvestmentplansareespeciallyusefulinplanningyourfinancesforyourretirement. 4 Whatiscompoundinterest? Theinterestonaloanordepositcalculatedbasedontheinitialprincipal,andthecollectiveinterestfrompreviousperiodsiscalledcompoundinterest.Itisbasically'interestearnedonmoneythatwaspreviouslyearnedasinterest'.Thisallowsyoursumandinteresttogrowatafasterratecomparedtothesimpleinterestwhichiscalculatedonlyontheprincipalamount. Therateatwhichcompoundinterestaccumulatesinterestdependsonthefrequency-higherthenumberofcompoundingperiods,higherwillbethecompoundinterest.Forinstance,ifyouearna10%annualinterest,adepositofRs100wouldgainyouRs10afterayear.Whathappensthefollowingyear?That’swherethecompoundinterestcomesin.You’llearninterestonyourdeposit,andyouwillalsoearninterestontheinterestyoujustearned. Thelongeryouleaveyourmoneyuntouched,thegreateritwillgrowbecausecompoundinterestgrowsovertimewhichmeansyourmoneykeepsonmultiplyingoveraperiodoftime.Ifyouarerepayingaloanoncompoundinterest,youshouldnotignorepayingtheinterestorifthereisanydelayinpayingtheloan,thentheinterestburdenwillbehigh.Totakeadvantageofcompounding,onemustaimatincreasingtheirfrequencyofloanpayments.Thiswayyoucanpaylessinterestthanwhatyouareliabletopay. Sincetheinterest-on-interesteffectcangeneratepositivereturnsbasedontheinitialprincipalamount,ithassometimesbeenreferredtoasthesnowballeffectofcompoundinterest. 5 WhatistheformulaforCompoundinterest? Youcancalculatecompoundinterestwithasimpleformula.Itiscalculatedbymultiplyingthefirstprincipalamountbyoneandaddingtheannualinterestrateraisedtothenumberofcompoundperiodssubtractone.Thetotalinitialamountofyourloanisthensubtractedfromtheresultingvalue. CompoundInterest=TotalamountofPrincipalandInterestinfuture(orFutureValue)lessPrincipalamountatpresent(orPresentValue) CompoundInterest=P[(1+i)n–1] Pisprincipal,Iistheinterestrate,nisthenumberofcompoundingperiods. Aninvestmentof ₹1,00,000 ata12%rateofreturnfor5yearscompoundedannuallywillbe ₹1,76,234.Fromthegraphbelowwecanseehowaninvestmentof ₹1,00,000hasgrownin5years. Incompoundinterest,oneearnsinterestoninterest.Therefore,italreadytakesintoconsiderationallthepreviousinterests.Andinterestispaidonthat. Year Investment(₹) Interest(₹) Atmaturity(₹) 1 ₹1,00,000 ₹12,000 ₹112,000 2 ₹1,12,000 ₹13,440 ₹125,440 3 ₹1,25,440 ₹15,052.8 ₹1,40,492.8 4 ₹1,40,492.8 ₹16,859.14 ₹1,57,351.9 5 ₹1,57,351.9 ₹18,882.2 ₹1,76,234.2 Byunderstandinghowcompoundinterestworksandactingonitbyinvestingintherightsetofinvestments,youcanachievehighreturns. 6 Whatisthedifferencebetweensimpleinterestandcompoundinterest? Simpleinterestisapplicableformoneyborrowedforafixedperiodoftime.Whilecompoundinterestisapplicablewhenevertheinterestisupforpaymentitwillbeaddedbacktotheprincipalamount. BelowarethetopdifferencesbetweenSimpleInterestandCompoundInterest: Basisofcomparison SimpleInterest CompoundInterest Meaning Itistheinterestonthetotalprincipalamount. Itistheinterestwhichisa%ofbothprincipalandaccumulatedinterest. Returnforlender Thesimpleinterestofferslowreturns. Thecompoundinterestoffersacomparativelyhighreturn. Principal Theprincipalisconstantforsimpleinterest. Theprincipalkeepschangingduetotheadditionofaccumulatedinterestduringtheperiod. Growth Principalandinterestgrowthisconstant. Principalandinterestgrowthisquickthatincreasesatafastpace. InterestCharged Interestischargedontheprincipalamountonly. Interestischargedontheprincipalamountandalsoontheinterestamount. Formula P*R*N P=Principal R=Rate N=Noofyears  P*(1+R)^NK P=Principal R=Rate N=Noofyears K=Timesofcompounding Calculation Calculationofsimpleinterestisveryeasyandeasytounderstand. Theinterestcalculationofcompoundinterestisalittledifficultcomparativelyasitinvolvesdifferentperiodsofcompounding. Useful Simpleinterestisbetterwhenbuyingsomethinglikeacarloanwhichiscalculatedbasedonsimpleinterest. Compoundinterestisusefulwhenitcomestoinvesting.Sinceitallowsthefundtogrowquickly. 7 Howdoescompoundinterestwork? Ifyoumakeasoundinvestment,compoundinterestcanhelpyoutobuildyourwealthovertime.Butifyourdebtissubjectedtocompoundinterest,thenitcancausefinancialhardshipifnotplanned.Tounderstandhowcompoundinterestworks,letusbreakdowntheprocessofhowyourinvestmentcancompoundbetter. CompoundIntereststartswhenyourinvestmentearnsinterest.Atthispoint,theinterestisaddedtotheinitialinvestmentamount.Whenitearnsinterestagain,itwilldeterminethenewlyearnedinterestbycalculatingtheinitialcapitalinvestedandtheearnedinterest. Asthesizeoftheinvestmentcontinuestogrow,itwillearninteresttothetotalinvestmentamount.Thisloopwillcontinueallowingtheinvestmenttogrowsubstantiallywithoutanyadditionalinvestmentcapital.Withtime,thiscyclehaspotentialforasubstantialgrowthoftheoriginalinvestment. Herearethetwofactorsthatwillhaveanimpactonyourcompoundinterestreturns: Time-Youneedtoallowyourinvestmentstogrowwithtime,themoretimeyouenable,themoregrowthyouwillsee. Therateofinterest-Ahigherrateofinterestwillgeneratehigherbalancewhencompoundingtheinvestment. Youcandecideyourinvestmentprioritiesandgoals,keepinginmindthevariousscenarios&avenuesandhowitwillimpactyourlife. Thebottomlineisthatifyouareabletoharnesstheadvantageofcompoundinterestthenitcanworkwondersforyourinvestmentplanandfinancialgoals. 8 Advantageofcompoundinterest Ifyouareconcernedaboutnotbeingabletosaveenoughforyourchild'seducationorretirement,thenwhynotpickaninvestmentavenuewithcompoundinterest?Ithasthepotentialtogrowyourwealthandanyonecantakeadvantageofthemanybenefitsaslistedbelow:. Youcanearninterestonboththemoneyyouhavesavedandontheinterestthatmoneyearns.Forinstance,Ifyouinvest ₹5000andreceive5%annualcompoundinterest,attheendoftheyearyouwillhave ₹5,250inyouraccount.Inyoursecondyear,interestwillbecalculatedon ₹5,250andwitheverypassingyear,theamountaccumulatedwillhavetheinterestpaidonthebalanceandgrowyourwealth. Thelongermoneysitsinacompoundinterestaccount,themorebenefityouwillreapoverthelongterm.Adifferenceofeven1%intheinterestratewillincreaseyourcapitalgains. Withinflation,thecostsofservicesandgoodsincreasegraduallyandcausesthepurchasingpowerofcurrencytodecline.Puttingcashininvestmentavenueswithcompoundinterestcanmitigatethenegativeeffectsofinflation. Ifyouareunabletomanagecashwell,youwon'tbeabletostayafloat.Youneedcashtofundyourdailyneedsandtoplanforlongtermgoals.Hence,investingmoneyincompoundinginterestaccountscanbeagoodsourceforlong-termcashmanagementplan. VIEWMORE ARN: EU/07/21/24505 AddHDFCLifetohomescreen