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's a powerful concept in finance that allows investments to grow exponentially over time.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( P \) — Principal amount (initial investment in INR)
• \( R \) — Monthly interest rate (annual rate divided by 12, as a decimal)
• \( N \) — Number of compounding periods (months)
• \( A \) — Final amount including interest (INR)

Explanation: The formula calculates how an investment grows when interest is compounded monthly, showing the power of reinvesting earned interest.

3. Importance of Compounding

Details: Compounding is crucial for long-term wealth creation. Even small differences in interest rates can lead to significant differences in final amounts over long periods.

4. Using the Calculator

Tips: Enter principal amount in INR, annual interest rate in percentage, and investment period in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How often is interest compounded in HDFC Life policies?
A: Most HDFC Life investment products compound interest monthly, but specific terms may vary by product.

Q2: 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 principal and accumulated interest.

Q3: How does compounding frequency affect returns?
A: More frequent compounding (monthly vs. annually) results in higher returns due to the interest-on-interest effect.

Q4: Are there tax implications on compounded returns?
A: Yes, interest earned is typically taxable as per Indian tax laws, though some insurance products may have tax benefits.

Q5: Can I use this for SIP calculations?
A: This calculator is for lump sum investments. For SIPs, a different formula accounting for regular contributions is needed.