The easiest and most common form of calculating interest on your investments, there is a common interest. Interest earned on the initial investment is made in the general interest. Say, you are back to the three-year period is calculated using the simple interest at the rate of 5% per annum and Rs 10,000 was invested. At the end of three years, the interest earned each year is Rs 500 and Rs 1,500, ie. Here, the base for calculating the interest rate constant. In general, the term deposits of less than six months, providing a common interest. Many financial products, however, operate on the principle of mixed interest. Compounding interest is based on the initial amount of investment in previous periods, nothing but the accumulated interest and is interested in computing. Generally speaking, it is earning interest on interest. If 5% of the annual investment at Rs 10,000, continuing with our previous illustration at the end of three years, interest of Rs 1576.25 per year failed to be met. Apart from the general interest, the interest increases every year for the calculation of the base rate of interest to be re-invested. The amount of the investment for a short period of time and compounding frequency in the example above, the only annual is, the less the difference between the two. Compound interest grows exponentially with the increase in the general interest in a linear fashion for a long time, however, the difference becomes even more important, many more acquisitions. The general interest is better than compound interest, compounding harness the power of these three points, you have to keep in mind:
Early Start of investing will give highest returns as the power of compounding works much better.
Long-term investment horizon.
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