Irrespective of any field of study one thing that remains common is..…..**Importance of basics**.

So, let’s start with some basics…

**What is an investment?**

An action with the intention of getting something **‘more’** than what is being invested at the end of stipulated time period.

This **‘more’** is known in financial world as **Interest.**

It’s the extra money paid for the use of money for a time period and is denoted as percentage of the original investment.

**For example**:

You invested **100 **in a bank and got **110 **after 1 year. In this case that percentage is **(110-100)/100** i.e. **10%**

Now after one year you will have **110**.

Where **100 **is your original investment and **10 **is **Interest**.

If you decide to keep it invested then after 2 years it will become

**110+110* 10%** i.e. **121**

[here extra 1 is what Interest of first year(i.e. 10) earns]

*“The money that money earns, earns money”** *

*— Ben Franklin*

When you earn interest on interest it is **“Compound Interest”**.

You have to see the Power of Compound Interest to fully appreciate it……and nothing illustrates it better than this famous story…

*In the early **1600 s**, the American Indians sold an island, now called Manhattan in New York, for various beads and trinkets worth about **$16**. Since Manhattan real estate is now some of the most expensive in the world, it would seem at first glance that the American Indians made a terrible deal. *

*Had the American Indians, however, sold their beads and trinkets, invested their **$16** and received **8%** compounded annual interest, not only would they have enough money to buy back all of Manhattan, they would still have several hundred million dollars left over (actually….*whopping **$222** trillion more than the current value of Manhattan)*.*

*That is the power of Compound Interest over time.*

*“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”*

* ― Albert Einstein*

Amazing…..right?

We‘ll try to figure out how this extra money known as **Interest **is generated with just the passage of time…..…Stay Tuned