Beginner guide · 4-minute read
Compounding, explained simply
Compounding means earning returns on your past returns, not just on the money you put in. Given enough time, it does most of the work.
Checked on 14 Oct 2026 against NetReturns' own calculation engines.
How it works, with real numbers
Put ₹1,00,000 away at 12% a year. After 10 years it's about ₹3,10,585; after 20, ₹9,64,629; after 30, ₹29,95,992. The last 10 years add more than the first 20 put together.
Starting early matters more than investing more later. ₹5,000 a month from age 25 to 60 grows to about ₹2,75,54,156 at 12%. Twice that, ₹10,000 a month from 45 to 60, grows to about ₹47,59,314.
Your money ₹1,00,000Growth over 30 years ₹28,95,992
Key ideas
- Time does the heavy lifting. Most of the growth comes in the later years, so starting early helps the most.
- Reinvesting keeps it going. Schemes that pay interest out to you, like MIS, don't compound unless you reinvest the payments.
- Small rate differences add up. 1% more a year makes a big difference over 20 or 30 years.
- Tax and fees slow it down. Tax taken every year, and fund fees, shrink the amount that keeps compounding.
Words you'll see
- Compounding
- Earning returns on earlier returns.
- Yearly (effective) rate
- The growth over a full year, with any compounding inside the year already included.
- Corpus
- The total amount your investment grows to.
- Reinvest
- Putting earnings back in instead of spending them.
Try it with your own numbersSee the tax, what you keep, and how it compares with other options.
This guide explains how things work. It is not advice on what you should invest in. NetReturns is not SEBI-registered.