Compound interest is the interest calculated on the initial principal and also on the accumulated interest of previous periods. It's often called "interest on interest" and can cause wealth to grow exponentially over time.

The formula for compound interest is A = P(1 + r/n)^(nt), where A is the amount, P is principal, r is annual interest rate, n is compounding frequency, and t is time in years.

The more frequently interest is compounded, the greater the returns. For example:

• Annual compounding: Interest calculated once per year
• Semi-annual: Twice per year (every 6 months)
• Quarterly: Four times per year (every 3 months)
• Monthly: Twelve times per year
• Daily: 365 times per year

Daily compounding will yield slightly higher returns than monthly compounding, which yields more than quarterly, and so on.

Simple interest is calculated only on the principal amount, whereas compound interest is calculated on the principal amount plus any accumulated interest.

For example, ₹10,000 at 10% simple interest for 3 years would earn ₹1,000 each year (₹3,000 total). The same investment with compound interest would earn ₹1,000 in year 1, ₹1,100 in year 2 (10% of ₹11,000), and ₹1,210 in year 3 (10% of ₹12,100), totaling ₹3,310.

The Rule of 72 is a simple way to estimate how long an investment will take to double, given a fixed annual rate of interest. You divide 72 by the annual rate of return, and the result is approximately how many years it will take for your investment to double.

For example, at 8% interest, your money will double in about 9 years (72 ÷ 8 = 9). At 6%, it would take about 12 years (72 ÷ 6 = 12).

To maximize compound interest:

• Start investing early to give your money more time to compound
• Choose investments with higher interest rates
• Select more frequent compounding periods when possible
• Make regular additional contributions
• Reinvest your earnings rather than withdrawing them
• Take advantage of tax-advantaged accounts