Is this the Power of compounding?

Want to be a millionaire and never got a chance to take part in Kaun Banega Crorepati? Worse, still you don't have the Dus Ka Dum option, nor have you been able to become Paanchwi Paas Se Tez yet. No need to lose heart over such things. You can still become a millionaire. All you need is lots of patience and the willingness to save constantly, without giving it a break.

Tell me the worth of Rs 100, at 10 per cent interest, after 150 years. Is it in thousands, lakhs...? Nah! That's Rs 16 crore! And the same amount would grow to Rs 1899 crore after 200 years. No, that is no magic, but simply the power of compounding, described as the eight wonder of the world by Albert Einstein himself. Imagine someone in your family might have left Rs 100 in a bank account 200 years ago. You would already have become a billionaire today! Simple.

Still unimpressed? Because you don't have the patience to wait for such a long period? Then try some other ways and avenues. You may get the desired result even within 3 to 10 years, depending on the kind of investment and the risk involved.

Says Ashish Kapur, CEO, Invest Shoppe India Ltd, "We believe the best way of making money, if you were to start with an empty kitty, is to make investment regularly in a disciplined manner. And when it comes to regular investing, there is nothing to beat SIP."

Thus, an extremely conservative person can easily look forward to an 8 per cent return compounded monthly and make a crore by investing Rs 1.37 lakh every month for five years.

If you are unable to make that kind of investment, then you can safely decrease the investment amount by increasing the period. For instance, if you save just Rs 5,000 every month and invest it in an absolutely safe instrument, which gives 8 per cent return compounded annually, you will amass over Rs 1 crore in 35 years alone.

However, if you are also willing to take risk for higher returns, then only the sky is the limit.

Says Amit Sarup, director, Religare Venture Capital Ltd, "There are various investment options which can increase the investor's wealth multifold over a time span. At the safest end of the spectrum are relatively risk-free investments such as National Savings Certificates, fixed deposits, debt mutual funds etc. which in current scenario can give a return of approximately 8-9 per cent pa and can double your money over a period of 8 to 9 years. However, one can opt for a high risk investment and venture into equities to get a much higher return in a shorter time-frame."

One needs to understand, however, that equity markets are very volatile and can also result in capital getting eroded in case of negative movements in equity markets. For an individual one of the best ways to invest into equities is by investing via the mutual funds route. In the past couple of years, the returns have been phenomenal with average returns being up to as high as 40 to 50 per cent per annum. However, even if one looks at the performance over much longer periods, there are many schemes which have given an annual return between 25 and 30 per cent.