Double Compounding

Before jumping into double compound let us refresh compound interest. In case of compounding, interest is calculated based on (principal + interest accrued) periodically.

For example, If 100k is invested in fixed deposit that compounds annually at the rate 12%, then every year interest shall be calculated on new capital (capital as per previous year + 12% on capital from previous year)

Formula for Compound Amount(Principle+Compound Interest) is

Compound Amount = Principal * (1 + interest rate/100)^number of years

For above example it is 100,000 * (1 + 12/100)^6

Notice that Principal nearly doubled in six years when compounded at the rate of 12% per annum. There is a shortcut to know approximately how many years it shall take to double the principal for a given annual rate of return.

“Approximate years to double Principal” = 72 / annual rate of return

Notice for above example 72/12 = 6

What is Double Compounding

What I mean is asset value grows and also the units of the asset that we hold grows at compound rate. Let me explain with some examples.

If I Invest 100k in fixed deposit at the rate of 6% per annum, it shall take around 12 year to double my investment.

Suppose if Gold gives 8% compounding returns on an average, it shall take around 9 years to double my investment. But at the end of 9 years I will have the same quantity of Gold, the appreciation I see is in Gold price.

What if my Gold quantity is also compounded along with Gold appreciation?

I have taken Gold for example, I am not sure of any platform for Gold that compounds our gold holdings. I came across https://vauldrates.com/ and was surprised to see that Vauld.com is giving a 12.68% fixed rate of interest for USDT. Historically my native currency Indian Rupee has been depreciated against the US Dollar.

If I had bought dollars with rupees10 years back, and dollars are compounded, and I exchanged those dollars to rupees I would have got better returns than just investing Indian Rupees in a bank’s Fixed Deposit.

Let us see illustration with hypothetical asset

Investment of Rs.100,000 in fixed deposit at the rate 6% per annum shall become Rs.179,000

If I invested Rs. 100,000 in FundX with an initial unit value Rs. 100 that grows at 8% per annum, at the end of 10 years, my investment shall become Rs. 215892.

I am still holding 1000 units of FundX but each unit is valued at 215.892 by the end of 10 years.

What if the number of units are also compounded? Let us say, the units are compounded at the rate of 12%, and FundX grows at the same 8% per annum. At the end of 10 Years I shall have 3105.84 units, and each unit value is 215.892.

My investment value shall be 670,526 for initial investment of 100,000.

For initial investment 100,000, notice values at the end of 10 years for each scenario

Conclusion

I came to know that there are various options in the Crypto world like Staking, Fixed Deposits that give compounding of assets we stake. If I am confident in any asset that grows its value over time and a platform that compounds these assets, I shall consider investing in those. DYDD/DYOR.

If you want me to provide an excel calculator please mention it in the comments.