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The power compounding as narrated by Albert Einstein “Power of compounding is eight wonder of the world”.

Let us consider couple of real time examples:

Example One:

A classical real time example recently Infosys completed 25 years foundation day of public listing. If one would have invested Rs. 10,000/- in the company in an IPO of 100 shares a lot would have made more than Rs. 2 Cr ex-bonus and splits.

Let’s see the math including bonus an splits, how much an investor could have earned.

In 1994, company declared 1:1 bonus = Investor receives 200 shares
In 1997, company declared 1:1 bonus = Investor receives 400 shares
In 1999, company declared 1:1 bonus = Investor receives 800 shares
In 1999, company split the share of face value Rs 10 to Rs 5 = Investor receives 1,600 shares
In 2004, company declared 3:1 bonus = Investor receives 6,400 shares
In 2006, company declared 1:1 bonus = Investor receives 12,800 shares
In 2014, company declared 1:1 bonus = Investor receives 25,600 shares
In 2015, company declared 1:1 bonus = Investor receives 51,200 shares

Total worth = Total number of shares 51,200 x 1,258 (close as on June 12) = Rs 6,44,09,600 (Rs 6.44 crore), indicating a CAGR of 44.42% percent.

The whopping almost 45% year on year in last 25 years, which is excellent and cant compared to index returns.

Example two:

A person A buys an house or a property in 1983 which is 35 years back at the rate of Rs. 35,000

As of today the market value of the property or house is Rs. 1,25, 00, 000/- which is 1.25 Cr.

If we can calculate the value of money invested and the return.

Today’s Value / No. of years = The value per year equally divided
1,25,00,000/35 = 3,57,142

One needs to save each year 3,57,142 to make 1.25 cr but at once Rs. 35,000/- invested 35 years back yielded you same amount money only just once in 35 years, even which is approximately 1/10 of your investment per annum.

So a right investment with a right financial advisor or or self research & vision at early stage of your life can see an exponential growth.

In our next free educational series, we would discuss on ‘Monetary Policy & its significance’.

We at Traders Hut intend to share the knowledge as ‘We believe sharing is caring’

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