With simple interest you earn a return only on your original amount. With compound interest, each period's interest is added to your balance, so the next period you earn interest on a larger sum — interest on interest.
The effect is small at first but dramatic over long periods. ₹1 lakh at 10% simple interest becomes ₹3 lakh after 20 years; at 10% compounded annually it becomes about ₹6.7 lakh.
Why time matters most
The longer money compounds, the steeper the curve. This is why starting to invest early, even with small amounts, often beats investing larger amounts later. It is the engine behind SIPs, PPF and long-term wealth building.