How Compound Interest Can Boost Your Earnings?

Aug 14, 2022

How Compound Interest Can Boost Your Earnings?

It is always a wise idea to secure your future with future wealth planning. Today, there are many options available in the market to help you do so. Smart investment is key to building a considerable corpus for the years to come. It allows you to set aside a part of your monthly income for future needs. Further, you can earn profits on the same by investing in the right places. This helps you build an effective and sizable fund for your future days that can help you lead your life in your retirement years.

Now, it is natural to be confused about where to invest and how much to invest. Would it not be great if the money you invested would keep growing and keep providing you with returns? If you like the sound of this concept, you must understand the effect of compound interest on your investment and utilize it for your investment opportunities in India. Let us take a look at the compounding effect.

Understanding the Key Concept of Compound Interest

The concept of compound interest can help you reap profits for ages. Albert Einstein famously called compound interest the “eighth wonder of the world”. Put simply, compound interest refers to the amount of money you earn as interest on the initial investment’s interest. 

For example, you happen to invest a sum of ₹ 100,000 in a scheme at an annual interest rate of 12%. So, at the end of the first year, you will get an interest of ₹ 12,000, taking your total amount to ₹ 112,000. Now, when you step into the next year, the interest will be calculated on the total amount of ₹ 112,000. This is because the ₹ 12,000 that you earned is reinvested allowing you to earn returns on such surplus. Thus, your initial interest earned also reaps long-term benefits for you.

Compounding or compound interest is an elusively simple concept. It can help in growing your money exponentially. However, the key to this is patience. You must allow a considerable amount of time for the magic of compounding to take shape. The longer your money goes through cycles of compound interest, the more it grows. It is also crucial to check the rate of compound interest. Along with that, you must take a look at the compounding frequency. Different schemes can offer compound interest on a quarterly or yearly basis. The most common type of frequency is the annual compounding effect.

Types of investment options with compounding effect

Now that you know about the benefits of compound interest, let us consider how to utilize it to the fullest. Some of the investment schemes are specifically designed to work on this concept.

Public provident fund (PPF):

Public Provident Fund or PPF is an immensely popular investment scheme. It serves the dual purpose of both saving and investing your money in the same scheme. This scheme comes with a 15-year tenure for earning PPF interest. Due to this long time interval, the compounding effect comes into play. The longer your money stays in the scheme, the more revenue it generates. Further, PPF is exempted from taxes. The option presently earns a 7.1% interest p.a. Thanks to compounding PPF interest and the tax saving aspect, PPF makes a good investment scheme for those looking for low and safe returns.

Mutual fund (MF):

Undoubtedly, mutual funds investment is one of the most popular investment routes. You can opt for equity mutual funds or debt mutual funds. In mutual funds, you can easily avail of the compounding factor. Since your initial investment is channeled to the market for a time period, you stay invested for a given time-frame. Thus your investments are allowed to grow over time. In turn, the growth surplus can then generate returns of their own. Thus, the compounding factor in mutual funds investment can help increase your wealth. Schemes like ELSS mutual funds also offer tax-saving benefits.

Peer-to-peer lending (P2P):

If you’re looking to earn higher returns minus the market volatility, peer-to-peer lending is one of the most profitable investment options there is in the market! P2P lending refers to a lending and borrowing mechanism where a P2P marketplace connects them directly via online channels. Products like LenDenClub’s FMPPs are excellent options in this arena. Thanks to flexible return periods of 1-5 years, the compound interest comes into play. Consequently, your investment sees more returns based on the size of your investment. The higher the time-frame and larger the investment size, the better are your yields.

With this type of product, hyper-diversification is the key which allows you to reduce your lending risks. LenDenClub is responsible for handling all the aspects of lending which makes it much easier for making fresh investments. With FMPPs, all you do is Create – Select – Invest and the three-step process is all it takes to start earning higher returns of 10 – 12% p.a.

Fixed deposit (FD):

Fixed deposits or FDs are a reliable source of investment. If you invest in a reinvestment or cumulative FD, you can make the best use of compound interest. For such FDs, the interest is generally compounded on a quarterly basis. The initial amount that you deposit along with the interest earned in each quarter is reinvested for the next quarter. This gives you a noticeable compounded effect and increases your wealth. FDs are extremely safe and not related to market fluctuations, but again the low single-digit returns have made the product irrelevant in the current market scenario.

Why should you invest in LenDenClub? 

Now that you have a good understanding of compound interest, here’s why you should consider investing with LenDenClub and reap maximum benefits:

LenDenClub is one of the most trusted P2P lending platforms in India. Thanks to advanced technology and revolutionary product enhancements, it offers smart investment options for all investors. It’s Fixed-maturity peer-to-peer lending or FMPP is the leading product offered by the company. The average rate of return is ly 12% p.a. Compared to other investment options in the market, this is an extremely high return that can contribute to your wealth growth.

Currently, there are over 4.5 million borrowers on the platform. In addition, there are more than 2 million investors at LenDenClub. Their ingenious P2P product can be a great addition to your investment portfolio. At LenDenClub, you can opt for flexible return periods between one and five years. In this time period, you can benefit from the compound interest factor, leading to immense future wealth generation. Hassle-free investments, seamless processes, and smooth returns are some of the key features that make LenDenClub a favorite among investors. So, if you are looking for the best investment opportunities in India, make sure to invest your money in LenDenClub today!

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