How it works
Compound interest means each year’s return is earned on the previous year’s returns as well as the original amount. The effect is negligible early and enormous late: at 12%, money doubles in about 6.1 years, quadruples in 12.2 and grows roughly sixteen-fold in 24. Almost all of that arrives in the second half.
The figure people overlook is what the money will buy. At 6% inflation, prices roughly double every twelve years, so a ₹10 lakh investment growing to ₹31 lakh over a decade is worth about ₹17.3 lakh in today’s terms. That is still a real gain — but it is 44% smaller than the headline, and it is the number that should drive the decision.
FV = P x (1 + r)^t Real value = FV ÷ (1 + inflation)^t
- P is the amount invested today
- r is the annual return as a decimal
- t is the number of years
- Real value converts the maturity amount back into today’s purchasing power
- Only invest money you will not needA lumpsum in equity needs at least five to seven years. Anything you might need sooner belongs in debt.
- Choose a return that matches the assetEquity funds 11–13%, hybrid 8–10%, debt 6–7.5%, FD 6.5–7.5%. Using an equity return for an FD makes the projection meaningless.
- Read the real value, not the nominalThe inflation-adjusted figure is what the corpus actually buys. Compare goals against that.
- Consider staggering a large amountInvesting a big sum over three to six months via an STP reduces the risk of committing everything at a market peak.
A worked example
A ₹10,00,000 lumpsum at 12% grows to about ₹31,05,800 in ten years — gains of ₹21,05,800, more than double the original amount, without adding a single rupee.
At 6% inflation over the same decade, prices rise by about 79%. That ₹31,05,800 buys roughly what ₹17,34,000 buys today. Still a substantial real gain, but planning around the ₹31 lakh figure would overstate what the money can actually do by nearly ₹14 lakh.
Common mistakes
- Comparing a nominal maturity figure against a goal priced in today’s rupees
- Putting a lumpsum into equity for a two or three year horizon
- Assuming FD-style certainty from a market-linked return
- Investing the entire amount at once at a market high instead of staggering it
- Ignoring tax on redemption, which reduces the amount you actually receive
How long money takes to double
| Annual return | Years to double (exact) | Rule of 72 estimate |
|---|---|---|
| 6% | 11.9 years | 12.0 years |
| 8% | 9.0 years | 9.0 years |
| 10% | 7.3 years | 7.2 years |
| 12% | 6.1 years | 6.0 years |
| 15% | 5.0 years | 4.8 years |
Frequently asked questions
FV = P × (1 + r)^t, where P is the amount invested, r the annual return as a decimal and t the years. For quarterly compounding, as most FDs use, it becomes P × (1 + r/4)^(4t).
Related calculators
Related terms
Related guides
How BudgetAnalyzer helps
Once the money is invested, the question changes from what it might become to what it is worth now. BudgetAnalyzer’s Investments section tracks each holding’s current value against the amount you put in, and folds the result into your net worth automatically.