What do you mean by Compound Interest
Compound interest is interest that is calculated on both the initial principal amount and all the interest previously accumulated. Generating “interest on interest” is known as the power of compound interest. Interest can be compounded at different frequencies, such as daily, monthly, quarterly or annually.
Compound interest investment option is one of the smartest methods you can choose, no matter the amount you invest. The main factor in compound interest is time, and the more time you have, the higher the payout.
There are two types of compound interest investment options
1) Secured Compound Interest Investing
These investments have a high degree of security with predictable and expected returns. For example, you can count on safe compound interest investments even when there are market fluctuations. If you are a low risk investor and aim for stable returns then this option is the best option for you.
2) Aggressive compound interest investing
The objective of these investments is to achieve maximum returns with a high level of risk. For example, there is a possibility of large profits and at the same time, there is also a possibility of significant losses. Aggressive compound interest investments do not guarantee stability and continued growth. However, they offer higher growth for long-term and consistent investors.
| Secured Compound Interest Investing | Aggressive compound interest investing |
| Fixed Deposits | Equity Mutual Funds |
| Public Provident Fund (PPF) | Equity-Linked Savings Scheme (ELSS) |
| National Savings Scheme (NSC) | SIP in good fundamentally stocks for long term |
| Life Insurance Savings Plans | National Pension System (NPS) |
| Debt Mutual Funds |
1. What is Fixed Deposits :-
A fixed deposit is a tenured deposit account provided by banks or non-bank financial institutions which provides investors a higher interest rates than a regular savings account.
Fixed Deposit (FD) is an instrument through which you can get a lump sum amount at a fixed interest rate over a fixed period of time. It is a safe investment option that guarantees consistent interest rates. It offers special interest rates for senior citizens, multiple interest payment options and no market-related risks.
2. What is PPF (public provident fund) :-
Public Provident Fund is a savings-cum-tax-saving instrument in India, introduced in 1968 by the National Savings Institute of the Ministry of Finance. The main objective of this scheme is to mobilize small savings by offering investments with reasonable returns combined with income tax benefit.
Public Provident Fund (PPF) is a savings and investment scheme offered by the government to help individuals build a secure financial future.
3. What is National Savings Scheme (NSC) :-
An initiative of the Government of India, National Savings Certificate (NSC) is a fixed income investment scheme that you can easily open at any post office.
National Savings Certificate is a savings bond scheme that encourages customers, mainly small to middle income investors, to invest while saving on income tax under Section 80C.
4. What is Life Insurance Savings Plans :-
Savings insurance plan is a life insurance plan that lets the policyholder save and invest to financially secure himself and his loved ones. Savings plans are financial products designed to promote disciplined savings while providing stable returns that help achieve your financial goals.
5. What is Debt Mutual Funds :-
Debt fund is a mutual fund scheme that invests in fixed income instruments, such as corporate and government bonds, corporate debt securities, and money market instruments etc. that offer capital appreciation. Debt funds are also known as income funds or bond funds.
6. What is Equity Mutual Funds :-
Equity funds are mutual funds that invest primarily in stocks, You invest your money through SIP or lump sum into the fund which then invests it in various equity shares on your behalf. The resulting gains or losses in the portfolio affect the net asset value (NAV) of your fund.
7. What is Equity-Linked Savings Scheme (ELSS) :-
ELSS or Equity Linked Saving Schemes are tax-saving mutual funds in India. They combine the benefits of equity investments with tax deductions under Section 80C.ELSS have a lock-in period of 3 years, offering high returns and tax saving potential, making it a popular choice for long-term investors.