Part II , The power of compounding

Please read the first part for continuity

As we saw in the table, suppose if a youngster aged 23 starts saving Rs.4000

In GPF every month and continues the same till retirement he gets Rs 1.05 crore as return.

The contribution by him is only 4000*12*37 =17.76 lakhs and the rest Rs 87.24 lakhs is

by way of interest.

This is the power of compounding and the power comes by way of longer time.

Hence it is always better to start young so as to able to reap maximum benefit.

If you refer the table, the return start to climb after 10 years and reaches peak after 20 years.

The table has been prepared with the assumption that he saves Rs.4000 consistently with no hike in his savings.

Whereas , everyone receives pay hike, promotion etc and after 20 years or so you will not save 4000

and the amount may be around 25000.

So in such a case what will be the return?

In the instant case, I am taking the assumption that he starts by 4000*12 =48000 and he increases

10% every year, i.e. 48000*110%=52800 and so on.

I

year	contribution	Cum contribution	interest	total
1	48000	48000	4224	52224
2	52800	105024	8402	113426
3	58080	171506	13720	185226
4	63888	249114	19929	269044
5	70277	339320	27146	366466
6	77304	443770	35502	479272
7	85035	564307	45145	609452
8	93538	702990	56239	759229
9	102892	862121	68970	931091
10	113181	1044273	83542	1127814
11	124500	1252314	100185	1352499
12	136950	1489449	119156	1608605
13	150645	1759249	140740	1899989
14	165709	2065698	165256	2230954
15	182280	2413234	193059	2606293
16	200508	2806801	224544	3031345
17	220559	3251903	260152	3512056
18	242615	3754670	300374	4055044
19	266876	4321920	345754	4667674
20	293564	4961237	396899	5358136
21	322920	5681056	454484	6135541
22	355212	6490753	519260	7010013
23	390733	7400746	592060	7992806
24	429807	8422612	673809	9096421
25	472787	9569208	765537	10334745
26	520066	10854811	868385	11723196
27	572072	12295268	983621	13278890
28	629280	13908170	1112654	15020823
29	692208	15713031	1257042	16970073
30	761428	17731502	1418520	19150022
31	837571	19987593	1599007	21586601
32	921328	22507929	1800634	24308563
33	1013461	25322025	2025762	27347787
34	1114807	28462594	2277008	30739602
35	1226288	31965890	2557271	34523161
36	1348917	35872078	2869766	38741844
37	1483809	40225653	3218052	43443705

In the instant case the return stands at Rs.4.35 crore and is really a huge sum.

There may be question about inflation and what will be the real value of Rs. 4.35 crore.

We will deal that separately in forthcoming discussion and here our aims

Is to understand the power Of compounding and we should effectively use it.

We will also work out some tables where in some one withdraws money

for buying a car, son's higher education, daughter's marriage etc.

which is important in one's life and as said earlier it is wiser to draw from GPF than

taking loan from other sources.

We will discuss