When you invest your money anywhere, you do not get interest on it immediately. Interest is received after a period of time. How much interest you will receive and when you will receive it depends on the amount of your investment. There are two types of interest. One is simple interest and the other is compound interest. In this article, we will tell you about a formula related to compounding, under which your money will double on investment. Before understanding this formula, let us know about simple interest and compounding.
Compound and Simple Interest
Simple interest is available on your principal amount. At the same time, compound also gives interest on the interest you get on your principal amount. That is, interest is earned on interest in compounding. For example, if you are getting 12 percent interest annually on Rs 100, then after one year you will get simple interest of Rs 12 and it will continue to be received like that. At the same time, interest will be received by adding both 12 and 100 in compound. In the first year you will get Rs 112 and in the next year you will get 12 percent interest on Rs 112.
8-4-3 formula of compound
This formula of the compound doubles your investment. Suppose you deposit Rs 21,250 every month in any scheme and you get 12 percent compound interest on it, then in 8 years your total investment will be Rs 33.37 lakh. At the same time, if you deposit the same amount for 4 more years then your total investment will be around Rs 67 lakhs and if you extend the investment for 3 more years then the total investment will be around Rs 1 crore. At the same time, if you invest in the same manner for 6 years, your amount will be around Rs 2 crore in 21 years. With this compound formula, your investment will double in just 12 years, but if you want to invest more than Rs 1 crore, then you will have to deposit money in the scheme for 15 years.