Investor Corner/Start here/Foundations
1.1.6 Compounding
Compounding is what happens when your earnings start earning their own returns. It looks unremarkable in the early years and becomes the single most powerful force in long-term investing later on.
Earnings that earn earnings
Simple interest pays you a return on your original amount, year after year, and nothing more. Compounding pays you a return on the original amount and on every rupee of return you've already earned. The gap between the two starts small and widens every single year, because the base that's earning a return keeps growing.
This is why the same rate of return produces wildly different outcomes depending on how long money stays invested. Compounding does most of its work late, not early, which is exactly why the years often written off as "not much happening yet" matter the most.
What it looks like over time
₹1 lakh growing at 12% a year is worth roughly ₹1.75 lakh after five years, ₹3.1 lakh after ten, and close to ₹9.6 lakh after twenty. The growth in the first five years and the growth in the last five years look nothing alike, even though the rate never changed.
The one variable you control most
You cannot control the market's return in any given year. You can control how long money stays invested and how early it starts compounding. Time is the input with the most leverage in the entire equation, which is why starting early consistently beats trying to catch up later with larger contributions.
How PriLytics helps. PriLytics shows portfolio value over time against your total invested amount, so the compounding curve for your own money, not an illustration, is visible whenever you check it. See performance over time.