Understand the Power of Compounding

The Power of Compound Interest: Understand the Power of Compounding

The following is a great post from Mr.Prakash P. Joshi. I am very thankful to him for his great effort behind creating this article. You can contact him on ppj_2001@yahoo.com

If, a good habit is developed at the early age of Life i.e. on the verge of completion of education and starting of some earnings say, at the age of twenty (20) and keep regularly investing only Rs. 1000/- {Rupees One Thousand only} p.m.  by way of SIP in a most passive manner, by putting money in say SENSEX based Index Mutual Fund (having least tracking error) the “Returns” will be phenomenal by the passage of time. Historically, since the inception in the year 1979 till the current year 2009 [time frame of 30 years] the average annualized ‘returns’ on BSE Sensex is about 18.67% even if we discount these figures and assume an average, moderate ‘returns’ projections @ little less than 15% p.a. one can arrive at an impressive amount . To quote an example Rs.100/-   (Rupees One Hundred only) grows to Rs. 1,00,000/- (Rupees One Lakh only) after 50 Years @ the annually cumulative ROI of 14.82%. It is further assumed that the person will keep investing regularly and religiously and reap the benefits of “Power of Compounding” which works & holds good better and better by the passage of TIME.

From the above one will understand and agree that none of the Insurance Scheme product like Endowment / ULIP, Pension Scheme etc... With unreasonably fat commission to the Agents, Administrative Charges under various heads cuts your corners (read- pocket) nicely. Further, the remaining amount after deducting essential ‘mortality’ charges gets invested with ‘returns’ LESS than the double digit figure. All this is presented in a most attractive flashy way! Are you going to be the victim? To overcome this always, go only for “Pure Term Insurance” {without return of premiums} with large Sum Assured vis-à-vis cheapest yearly premium and never mix up concept of ‘Saving’ & ‘Investment’ with Life Insurance for heaven’s sake. Even, it is advisable & wise to get out of the mess, by making your existing Endowment / ULIP / Pension Scheme Life Insurance policies convertible in to “Paid Up” status at the earliest, but do not “Surrender” them for sizable loss.

Please convey the above message to your young, dear and near ones for their future benefit.