Investment Interest Income Calculator

Compound Interest Formula:

\[ A = P \times (1 + r/n)^{n \times t} \]

Principal Amount (P):

₹

Annual Interest Rate (r):

Compounding Frequency (n):

Time Period (t):

years

Future Value (A):

Interest Earned:

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1. What is Compound Interest?

Compound interest is the interest calculated on the initial principal and also on the accumulated interest of previous periods. It allows investments to grow exponentially over time, as interest is earned on both the original amount and the interest that has been added to it.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

\[ A = P \times (1 + r/n)^{n \times t} \]

Where:

\( A \) — Future value of the investment
\( P \) — Principal investment amount
\( r \) — Annual interest rate (decimal)
\( n \) — Number of times interest is compounded per year
\( t \) — Time the money is invested for (years)

Explanation: The formula calculates how much an investment will grow when interest is compounded at regular intervals over time.

3. Importance of Compound Interest

Details: Compound interest is a powerful concept in finance that can significantly increase investment returns over the long term. It's often called the "eighth wonder of the world" for its ability to generate wealth through reinvestment of earnings.

4. Using the Calculator

Tips: Enter the principal amount in ₹, annual interest rate as a percentage, select compounding frequency, and time period in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest.

Q2: How does compounding frequency affect returns?
A: More frequent compounding (daily vs annually) results in higher returns because interest is calculated and added more often.

Q3: What is the Rule of 72?
A: A quick way to estimate how long it takes for an investment to double: 72 divided by the annual interest rate gives approximate years.

Q4: Can this calculator be used for loans?
A: While the formula is similar, loan calculations typically use amortization schedules. This calculator is designed for investment growth.

Q5: Are the results accurate for real-world investments?
A: The calculator provides theoretical results. Actual investment returns may vary due to fees, taxes, and market fluctuations.