Have you ever wondered how many zeros a 100 Rs. deposited every month for three years with interest compounded will be at the end of say 50 years. You will be amazed that the figure would be in lakhs. That is the power of compounding, which is described by Einstein as the Eighth Wonder of the World and those are the miracles of long-term investing. If you do good planning in the finances keeping in mind the power of compound interest, your financial planning will fetch you good money. Keep the following in mind:

1. Return: Opt for the investments which give net return at least 8% above the inflation rate. Present inflation rate on whole-sale price index is approx 5% where as it is around 10% on retail basis. So one should invest where one can get a higher rate of return, i.e. 18% per annum.

2. Diversification of portfolio: putting the eggs in one basket will increase the risk. To minimize the risk, one should opt for diversification of the portfolio.

3. Different classes of Assets: Allocation of annual savings (which should be at least 25% of total annual income),   can   be   divided   into shares through diversified equity mutual funds (50-60%), unit linked insurance plans (share based) (20-30%) and PPF/GPF/Bank Deposits (10-30%).

4. Be a long-term investor: To reap the benefits of compound interest, it is required to stay invested for a longer period of time. By investing just Rs 1,00,000 on the birth of your child, you are likely to get over Rs. 32 Lakhs by the time your child is around 20 years of age, and you can plan his/her higher education or marriage. Here how it works, at the birth of your child, invest Rs. 1, 00,000 (One Lakh) in diversified equity mutual fund in the top 5 ranking diversified equity mutual funds.  Opt for growth options and let dividends get accumulated in the initial investment. Stay invested for long and do not redeem (withdraw) investment before 20 years. Please note that substantial growth is possible only for long-term investors, preferably not less than 10 years. One can also opt for the switch option shift your investment in the first 5 top ranking diversified equity mutual funds and you will be surprised by the way your money will grow after about 20 years.

Many of the investors want to know that how long it will take to double their money. The Rule of 72 can be followed to come to the answer of that. Albert Einstein came out with an answer goes to prove how relevant is the question of doubling the money. It is called the ‘Rule of 72’.It works like this: Divide 72 by the rate of return offered. For example, if the rate of return is 18%, it will take 72/18 = 4 years to double your money. One can work out on the strategy by confirming the minimum rate of interest offered. Though in case of mutual funds and other investment options return much more than that if you stay invested for a long time on the principal of compound interest.