The Two sides of Time Value of Money

 The Two sides of Time Value of Money

Just as a Coin has two sides, so money has a two things for time to grow.

No matter what investment avenues we invest in, there are few things to know that go beyond the Investment returns. They are like Inflation, Taxes and Reinvestment opportunity. Most of us have a laid back attitude when it comes to painting a picture about Money. Yes, every one thinks that for growing wealth - Big Profits or High returns is important.

However the Profits or High returns are not the only reason for money to grow. It's time, the Investment period is always important and considered to be as Mandatory. The more time we give our money to grow, the more it's growth will be. The reason for this is the benefit of Compound Interest.

Power of Compounding is the eighth wonder of the world. It is the miraculous weapon of the Super Rich today. There is another side of Compound interest is available as well. If the Compound interest would benefit for the Future wealth, then the Discount rate is the present value which provides the better forecast for the future.

Time Value of Money:

The money you have now is not the same as it will be years from now - as per Investopedia

Generally, the Future money is equal to Present Money plus the Time given. The Compounding helps to move the money invested today (Present value) to the Future Value. It can be any rate of return, positive or negative, months or years.

For example, If i have invested an amount of Rs. 10,000 in a particular investment product now and to wait for the next 5 years. After 5 years, if i am getting a maturity amount of Rs. 15,386 (including principal amount), then it has some rate of interest for the said five years. So, the Time value of money works for my invested money to grow in the 5 years.

On the other side, What is the amount required now to invest, if i need a maturity amount of Rs. 15,386 after 5 years ? Here is the Discounting value, which is used to calculate the present value from the Future value. The Time value of money works for me to forecast the Future value to Present value - It's Discounting by the period.

The Discounting Rate or Value is the Present value of an income that is available in the Future. 

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