Compound Interest Concept

Compound interest concept can be explained by looking at how much you can get from RM10,000 initial investment after 20 years.

Using the compound interest formula, the value of a compound interest investment after ‘n’ interest periods is calculated as:

FV = PV( 1 + i )n

where:
‘FV’ = Future value after ‘n’ interest periods.
‘PV’ = Present value of Principal,
‘i’ = the interest rate applying to each period.
‘n’ = the number of interest periods (number of years for per annum computation)

Thus the future value (FV) of RM10,000 in 20 years:

When Interest rate is 10%

FV= RM67,275

When Interest rate is 15%

FV = RM163,665

When Interest rate is 25%

FV = RM867,362

In fact, an equity fund can give you 100% return in a year or it makes a loss of 99% in extreme bear market. If your portfolio can produce 15% return per annum consistently, that’s already fantastic.