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One of the salient features of a mutual fund is the power of compounding. With compounding, the interest you earn increases whenever you increase, i.e., “step-up” your mutual fund investment. Numerous mutual fund investment options are offered by leading financial institutions that offer a compounding interest on your investments. These schemes come with a definitive compounding period that helps you take advantage of the power of compounding according to your requirements.

## How is compound interest calculated?

Calculate the compound interest using this formula:

Compounding interest = principal investment amount(1+compound interest rate/the number of times that interest is compounded)(nt)

*thet stands for the investment horizon

## How does the power of compounding work?

Investment options like mutual funds and fixed deposits reinvest your earnings over time to generate additional earnings. For instance, you invest ₹1,00000 annually in a top mutual fund that comes with an annual compounding interest of 5%. In the 5th year, your total investment of ₹5,00000 would be worth ₹5,80,000. If your return rate increases by 8%, the future value will be approximately ₹6,34,000. Use an online power of compounding calculator to understand how your returns can differ over time.

## What is the power of compounding calculator?

A compound interest calculator is an online tool that can help you calculate the worth of your investment after compounding. The power of compounding calculator calculates your savings by using the compound interest formula. You can calculate the potential returns you could from an investment using this calculator. You can determine how much your savings will grow if invest in mutual funds.

## How to use an online compounding calculator?

Follow these steps to use a power of compounding calculator:

• Enter the principal amount
• Modify the interest rate and investment horizon
• Tweak the compound interval.

Let’s look at an example. You invest ₹1,00000 annually (which is the compound interval) in your mutual fund. The investment horizon is 20 years and the interest rate is 13%. The total maturity amount after two decades is ₹11,52,309.

## What are the advantages of the power of compounding calculator?

A few benefits associated with the power of compounding calculators are:

A power of compounding calculator helps you financially plan for the future. Use this online compounding calculator to ascertain how much your investment will reap before you start investing in the mutual fund scheme. You can compare all the plans and pick the investment option that suits you the most by using the calculator.

• ### Eases calculation

These calculators have simplified the process of calculating compound interest. The online power of compounding calculator provides you with accurate results in just seconds. Hence, they save time for you.

• ### Compare different scenarios

You can also use the calculator for comparing different scenarios by tweaking different options in the calculator like the interest rate, investment horizon, and investment amount. You can compare the results from different scenarios and determine the best plan to invest.