Compounding and its magic!

Summary: Ever wondered how a simple game of chess can teach you the secret to building serious wealth without breaking a sweat? This story unpacks that timeless trick through a king's wild miscalculation and what it means for your money today.

Let's start with the famous ‘rice and the chessboard story’. Once upon a time, there lived a king who was a chess enthusiast. He beat every known player. To motivate his opponents, the king would give them any reward that they asked for, provided they were successful in beating the king. One day, he was challenged by a travelling sage to a game of chess. The king obliged and asked the sage to name a prize for himself if he won.

The sage asked for one grain of rice on the first square of the chessboard. The king got perplexed and asked, "That's it?" The sage continued and said, two grains on the next tile, then four grains on the next, and so on, such that each square has double the amount of the previous one.

The king was baffled; the sage could have asked for any valuable reward he wanted. Nonetheless, he immediately agreed, as to him it looked like a very small prize. The sage was a brilliant player and defeated the king. Having lost the match and being a man of his word, the king called his treasurer to reward the winner. His officials began placing the rice on the chessboard.

They put one grain on the first square, two grains on the second, four grains on the third, then eight, 16, 32, 64 and so on. The quantity started to look much more than what the king expected to be at the start. It was increasing exponentially with every next tile. By the end of the fourth row (square 30), the grains exceeded one billion, far beyond initial expectations. By the 64th square, it totalled a staggering 18,446,744,073,709,600,000 grains, dwarfing India's record 152 million tonne rice output projected for 2025-26. This is called exponential growth or the ‘power of compounding’.

The same applies to your investments, as returns compound over time. For many people, just like the king, this concept of compounding doesn't occur to their mind and they lose as a result. 

To understand compound interest, let's first understand simple interest. Given an amount of principal, simple interest earns the same amount of interest every year. Whereas compound interest adds on top of the previous year's interest, essentially adding interest over interest. This addition of interest is called compounding.​

For example, if you invest Rs 1 lakh in an instrument earning 10 per cent per annum, your money will grow to an impressive Rs 17.45 lakh by the end of 30 years (100000×(1.1)30). But what's even more interesting is the way your money would grow over these years. You can model it yourself with Value Research's compound interest calculator tool.​​

Your money would grow by only Rs 10,000 in the first year. In the following year, you'll earn Rs 11,000. That's 10 per cent on the initial Rs 1 lakh plus 10 per cent on Rs 10,000 earned in the first year. As this pattern repeats, your gains in every subsequent year are higher than the previous year. By the 26th year, the amount you earn in a single year would surpass your initial investment itself. That's how compounding casts its magic over a period.

As you can see, compounding works best when you give it lots of time. That's why you should start investing as early as possible. No matter how small the amount, JUST START! Invest in top-rated equity funds through SIPs via Fund Selector to harness the benefits of rupee-cost averaging.​​

In the beginning, you might feel like nothing is happening. But after a few years, compounding starts to show its magic and your corpus grows exponentially. Another important element is to stay invested in the market, no matter how difficult it might get during times of sharp market corrections. That's because time and patience are the two most important weapons in your arsenal to take advantage of the power of compounding. For deeper insights, explore more on compounding's real-world impact.

Also read: How to go from Rs 1 cr to Rs 5 cr in 14 years, with zero SIP

This article was originally published on July 19, 2022, and last updated on February 11, 2026.