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An Investor’s Perspective: The Story of Rice and Chessboard

“Doesn’t matter where you start, it’s how far you go and whether you withdraw anything along the way”

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rice and chessboard
The total number of rice grains needed to fill the chessboard would be 18,446,744,073,709,551,615. Shutterstock

In life, you need to have both knowledge and experience to reap the most significant dividends. Without one, the other will always yield fewer results. Take the classic story of rice and chessboard, for instance. The story, where a sage after serving a king well asked the king to fill a chessboard by putting rice grains in each square. The count must start with one grain but should double the number in the next square.

‘How much rice could it take?’ thought the king and ordered the sage’s wish fulfilled. He couldn’t have been more wrong.

How Much Rice Will Fill the Chessboard?

The total number of rice grains needed to fill the chessboard would be 18,446,744,073,709,551,615. That is more than 18 quintillion rice grains with an approximate weight of 210 billion tonnes.

India currently produces an approximate 100 million tonnes of rice each year. At this rate of production, it will take the country more than 2,000 years to grow enough rice to pay the sage entirely.

Crux of the story?

“Doesn’t matter where you start, it’s how far you go and whether you withdraw anything along the way.”

investor's perspective, rice and chessboard
For instance, when you invest in a mutual fund, you earn interest on the principal amount. Furthermore, you reinvest your earnings or earned interest to receive additional units. Pixabay

What’s Compounding & How Does it Work?

Compounding works pretty much the same as the chessboard rice count. And there’s much to learn from this story if you wish to compound your wealth. In today’s day and age, who wouldn’t like to see their money grow?

In case of investments, compounding implies earning an “interest on interest.” In other words, compounding is similar to a multiplier effect because the interest earned on the initial capital also earns interest. As a result, the value of your investment grows exponentially rather than linearly.

The benefits of compounding are prominent in the long-term investment period. For instance, when you invest in a mutual fund, you earn interest on the principal amount. Furthermore, you reinvest your earnings or earned interest to receive additional units.

This way, you can earn a return on both dividends and the principal. This is essentially how compounding works: the principal amount is combined with the re-invested income, and your investment grows at an increased rate.

For example, an investment of Rs. 1,000 every year will grow up to Rs. 1,84,166 at an annual interest rate of 8 percent in 10 years. At the same rate of interest, you may earn up to Rs. 5,92,947 in 20 years. As you can see, when you invest for an extended period in a market-linked instrument such as a mutual fund, SIP or ULIP, you can easily maximize your earnings, courtesy compounding.

investor's perspective, rice and chessboard
ULIPs or Unit Linked Investment Plans offers you the combined benefits of investments and insurance under as a single plan. Pixabay

How Does ULIPs Yield Compounded Return?

ULIPs or Unit Linked Investment Plans offers you the combined benefits of investments and insurance under as a single plan. If you have long-term goals such as buying a house, a new car or sending your child abroad for higher education, ULIPs can help you maximize your savings through compounding, and you get considerably high returns on your capital.

This stands true even when you want to exit the ULIP after the initial lock-in period of five years, in comparison to retaining your money in a savings account or an FD, or not having invested the amount at all.

While a portion of your investment is used to provide life cover, the remaining amount is invested in a variety of equity and debt instruments as per your risk appetite and life goal. Essentially, you can reap the most benefits from the compounding effect by keeping your ULIP going for a longer time horizon.

You have the flexibility to switch between equity and debt fund options under ULIPS, which allows you to secure your investments against market volatilities. The equity investments under a ULIP are made at the prevailing Net Asset Value of the fund (NAV) of the funds. The NAV is the “price’ of each fund unit, which is calculated by dividing the sum of all investments made under the fund by the number of units issued.

investor's perspective, rice and chessboard
The NAV is the “price’ of each fund unit, which is calculated by dividing the sum of all investments made under the fund by the number of units issued. Pixabay

ALSO READ: Is Budget 2019-20 a Hope for India’s Development?

With ULIPs, Compound Your Savings and Happiness Easily

Your wealth can easily grow into a substantial fund amount courtesy the benefits offered by compounding. However, you need to take advantage of the market-linked investments through ULIPs to achieve that.

While ULIP plans from reputable insurers such as Max Life Insurance help you maximize your investments through long-term equity market investments, they also help secure yourself and your loved ones against life’s contingencies with high ULIP returns and life cover.

Remember, if money is like the grain of rice and investment market is the chessboard, your approach and experience only limit you. Play smart and hold the innings together to achieve long term returns.

Next Story

To Meet Increasing Demand Africa Needs to Quadruple Energy Investments

Africa's overall population is set to exceed 2 billion before 2040, accounting for half of the global increase over that period

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Africa, Energy, Investments
The number of people living in Africa's cities is expected to expand by 600 million over the next two decades, much higher than the increase experienced by China's cities during the country's 20-year economic and energy boom. Pixabay

Africa is set to become increasingly influential in shaping global energy trends over the next two decades as it undergoes the largest process of urbanisation the world has ever seen, a new report from the International Energy Agency (IEA) said on Friday.

‘Africa Energy Outlook 2019’, a special in-depth study, finds that current policy and investment plans in African countries are not enough to meet the energy needs of the continent’s young and rapidly growing population.

Today, 600 million people in Africa do not have access to electricity and 900 million lack access to clean cooking facilities.

The number of people living in Africa’s cities is expected to expand by 600 million over the next two decades, much higher than the increase experienced by China’s cities during the country’s 20-year economic and energy boom.

Africa, Energy, Investments
‘Africa Energy Outlook 2019’, a special in-depth study, finds that current policy and investment plans in African countries are not enough to meet the energy needs of the continent’s young and rapidly growing population. Pixabay

Africa’s overall population is set to exceed 2 billion before 2040, accounting for half of the global increase over that period.

These profound changes will drive the continent’s economic growth, infrastructure development and, in turn, energy demand, which is projected to rise 60 per cent to around 1,320 million tonnes of oil equivalent in 2040, based on current policies and plans.

The new report is the IEA’s most comprehensive and detailed work to date on energy across the African continent, with a particular emphasis on sub-Saharan Africa.

It includes detailed energy profiles of 11 countries that represent three-quarters of the region’s gross domestic product and energy demand, including Nigeria, South Africa, Ethiopia, Kenya and Ghana.

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The report makes clear that Africa’s energy future is not predetermined.

Current plans would leave 530 million people on the continent still without access to electricity in 2030, falling well short of universal access, a major development goal.

But with the right policies, it could reach that target while also becoming the first continent to develop its economy mainly through the use of modern energy sources.

Drawing on rich natural resources and advances in technology, the continent could by 2040 meet the energy demands of an economy four times larger than today’s with only 50 per cent more energy.

Africa, Energy, Investments
Today, 600 million people in Africa do not have access to electricity and 900 million lack access to clean cooking facilities. Pixabay

“Africa has a unique opportunity to pursue a much less carbon-intensive development path than many other parts of the world,” IEA’s Executive Director Fatih Birol said.

“To achieve this, it has to take advantage of the huge potential that solar, wind, hydropower, natural gas and energy efficiency offer. For example, Africa has the richest solar resources on the planet, but has so far installed only 5 gigawatts of solar photovoltaics (PV), which is less than one per cent of global capacity.”

If policy makers put a strong emphasis on clean energy technologies, solar Photovoltaic (PV) could become the continent’s largest electricity source in terms of installed capacity by 2040.

Natural gas, meanwhile, is likely to correspond well with Africa’s industrial growth drive and need for flexible electricity supply.

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Today, the share of gas in sub-Saharan Africa’s energy mix is the lowest of any region in the world.

But that could be about to change, especially considering the supplies Africa has at its disposal — it is home to more than 40 per cent of global gas discoveries so far this decade, notably in Egypt, Mozambique and Tanzania.

Africa’s natural resources aren’t limited to sunshine and other energy sources. It also possesses major reserves of minerals such as cobalt and platinum that are needed in fast-growing clean energy industries.

“Africa holds the key for global energy transitions, as it is the continent with the most important ingredients for producing critical technologies,” Birol said.

African countries are on the front line when it comes to climate change, meaning the continent’s energy infrastructure planning must be climate resilient.

“Even though Africa has produced only around two per cent of the world’s energy related CO2 emissions to date, its ecosystems already suffer disproportionately from the effects of a changing climate,” Birol added. (IANS)