Submitted by admin on July 17th, 2024
Picture yourself having a snowball, each time you add to it you roll it down the hill. As it rolls, it collects more snow accumulating more and more snow as the snowball gets larger and larger. This is the same way that compounding works in investments where the returns are added to the principal amount rather than the interest being paid on the principal amount.
The 7-3-2 Rule:
This rule is a kind of approximation as to how much of investment one will have to make in order to achieve a targeted corpus (total quantity) after taking into consideration the factor of compounding. It uses ratios:
According to Funds India the path to first Rs 50 lakh is strenuously long, a seven year sojourn, whereas the path to second Rs 50 lakh is half that time – three years and to the third Rs 50 lakh is even less- two years. When you are 15, you increase your worth by a staggering Rs 49.93 lakh every single year!
The following table presents the details of the 7-3-2 rule in with different investment percentages at an annual return of 12 percent.
For instance, if you let’s say you invest Rs 30,000 every month, with an annual return of 12%.
Accumulation of interest where there is added up base amount or principal and interest from the preceding calculation is added up to make the new amount. This is because compound interest is accumulations on accumulations or in the case of investment funds returns on the returns. Suppose you are putting Rs 30,000 monthly with an annual rate of return of 12 percent.
The second chart below also shows the future possibility of SIP with compounding. By investing Rs 50,000 monthly with a 10% annual increase in your contribution and assuming a 12% annual return, here’s what you could achieve: By investing Rs 50,000 monthly with a 10% annual increase in your contribution and assuming a 12% annual return, here’s what you could achieve:
Three factors play a crucial role in reaching your crore-club dream:
Point to note: The 7-3-2 rule is a simplification and may not be perfectly accurate, especially for long-term investments.
The actual time it takes to reach your target corpus will depend on the investment return and the frequency of compounding (e.g., monthly vs. annually). This rule is a helpful starting point for understanding how much you might need to invest to reach your financial goals.
It can be difficult to keep track of repayments if each lender has a different repayment amount or repayment date. There are two possibilities that may assist you: loan consolidation and also balance transfer. But which one can save you more mon....
Read MoreIt may be hard to keep track of several loans. When you have multiple EMIs, different interest rates, repayment dates and loan terms, it can become challenging to keep track of everything.When you're asking yourself how to pay off all your l....
Read MoreCan you take out a personal loan if you already have a loan? Let us assume you qualify with the lender. The presence of an existing loan doesn't mean that your loan application will be denied. But before approving another loan, lenders will look....
Read More
Pioneering ease of access to Basic Banking & Financial Services in Rural India