HaatBeatHow it's calculated
P is the amount invested, r the yearly return as a decimal and t the number of years. Each year's growth is added to the amount and grows in later years.
Assumptions
- The return is the same every year; real returns go up and down.
- Growth is compounded once a year.
- Nothing is added or withdrawn, and taxes and charges are not included.
Worked example
1,00,000 rupees invested for 10 years at 12% a year could grow to about 3,10,585 rupees. 10,000 dollars for 10 years at 7% could grow to about 19,672 dollars.
Questions
Lumpsum or SIP: which is better?
With the same steady return, money invested earlier has longer to grow, so a lumpsum ends higher. Real returns vary, and spreading investments over time lowers the risk of investing everything at a high point. The lumpsum or spread page compares both.
What return should I use?
Use a rate that matches the investment's long-run history, and try a lower one too. Past returns do not promise future ones.
Why does the value grow faster in later years?
Each year's growth is added to the amount, so later years earn growth on a larger sum. This is compounding.
Sources
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