Compound Interest Formula
A = P × (1 + r)^tWhere:
- P = Principal amount (₹)
- r = Annual return rate (decimal)
- t = Investment tenure (years)
Step-by-Step Example
Step 1: Define Parameters
₹12,00,000 invested @12% for 12 years
Step 2: Convert Rate
12% = 0.12 (decimal form)
Step 3: Apply Formula
A = 12,00,000 × (1 + 0.12)^12
Step 4: Calculate Growth
Year 1: ₹13,44,000
Year 2: ₹15,05,280
...
Year 12: ₹46,75,200
Final Result
Total Corpus: ₹46.75 Lakhs
Returns: ₹34.75 Lakhs
SIP vs Lumpsum Formula
For SIP calculations, we use:A = P × [(1 + r)^t - 1] / r
Lumpsum
₹12L @12% for 12Y → ₹46.75L
SIP
₹10k/month @12% for 12Y → ₹31.75L
Tax Calculation Method
For gains >₹1 lakh:
Tax = (A - P - 1,00,000) × 20%Example
₹46.75L corpus → ₹34.75L returns
Taxable: ₹33.75L
Tax: ₹6.75L (20%)
SBI FD Calculation
For fixed deposits:
A = P × (1 + r)^tExample
₹5L @7.5% SBI FD for 5Y:
Year 1: ₹5,37,500
Year 5: ₹7,17,816
Formula Verification
- Validated against NSI guidelines
- Matches physical bank statements
- Updated quarterly with market rates