Compounding is the process where the returns your investment earns start earning their own returns, on top of your original amount, creating a snowball effect that accelerates the longer your money stays invested. In simple terms, you don't just earn returns on what you put in — you also earn returns on the returns you've already earned.
For example, ₹1,00,000 growing at 12% a year becomes ₹1,12,000 after year one. In year two, you earn 12% not just on the original ₹1,00,000 but on the full ₹1,12,000, giving you ₹1,25,440. This gap between simple growth and compounded growth widens dramatically over long periods — which is exactly why starting to invest early, even with small amounts, tends to matter far more than trying to invest larger sums later in life.