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How it works
Interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods.
The formula
A = P(1 + r/n)^(nt)- n
- Compounding frequency per year
Worked example
₹1 Lakh growing at 10% compounded annually for 20 years.
Pro tips
- Higher compounding frequency increases the total return.
- Time is the biggest factor in compounding.
Common mistakes
- Ignoring the effect of the compounding frequency.
Go deeper
Related lessons
Concepts to explore
Power of Compounding
Institutional grade calculations are illustrative and for educational wealth architecture. Results do not constitute investment advice.