India is a country where everyone wants a little extra for their money and we Indians are obsessed with savings. Well rightly so, but then what to do with our savings, do we know?

Let’s check what happens when you invest your savings at 4%, 9%, 14% and 20%. Let’s say you save Rs. 100 each year and invest them at the above rates. The table shows the cumulative amount at the end of each period at different investment rates.

Year Amount Savings FD Index.fund Business
4% 9% 14% 20%
1 100 104 109 114 120
2 100 212 228 244 264
3 100 325 357 392 437
4 100 442 498 561 644
5 100 563 652 754 893
6 100 690 820 973 1192
7 100 821 1003 1223 1550
8 100 958 1202 1509 1980
9 100 1101 1419 1834 2496
10 100 1249 1656 2204 3115
11 100 1403 1914 2627 3858
12 100 1563 2195 3109 4750
13 100 1729 2502 3658 5820
14 100 1902 2836 4284 7104
15 100 2082 3200 4998 8644
16 100 2270 3597 5812 10493
17 100 2465 4030 6739 12712
18 100 2667 4502 7797 15374
19 100 2878 5016 9002 18569
20 100 3097 5576 10377 22403
21 100 3325 6187 11944 27003
22 100 3562 6853 13730 32524
23 100 3808 7579 15766 39148
24 100 4065 8370 18087 47098
25 100 4331 9232 20733 56638
26 100 4608 10172 23750 68085
27 100 4897 11197 27189 81822
28 100 5197 12314 31109 98307
29 100 5508 13531 35579 118088
30 100 5833 14858 40674 141826

Do the results surprise you? No, let’s check the following graph and table to see the effect of compounding on your wealth.

Ratio 4% 9% 14% 20%
5 1 1.2 1.3 1.6
10 1 1.3 1.8 2.5
15 1 1.5 2.4 4.2
20 1 1.8 3.4 7.2
25 1 2.1 4.8 13.1
30 1 2.5 7.0 24.3

The ratios and multiplier simply show the factor by which you would be richer at the end of each 5-yr period. So after 30 years, investments at 20% compared to 4% would be worth 24 times. Warren Buffet, a famous investor is one of the world’s top 5 richest men and his rate of compounding is around 20% (in dollar terms). If you had invested in Sensex since 1978 then excluding dividends you would have been around 14% mark. The color of graph will decide the ratio you end up with, which color do you like?