Compounds quarterly every year
The amount you would end up with after seven-year or quarterly compounding with an initial investment of 4,00,000 rupees would be INR 606,888.8/-
Simple interest of 6% every year
The amount you would end up with after simple interest once every year would be INR 5,68,000/-
Now the difference is noticeable. That small gap of 500 rupees amounts to an opening of 38,000 rupees. That is the power of compounding.
Amount to deposit
In today's time, one can deposit as low as ten thousand rupees via an investing app and have their fixed deposit. Usually, people put a good chunk of their investing money into Fixed Deposit as it is safe, requires significantly less paperwork and documentation, and has easy tax accounting.
A Fixed deposit can be short as six months and as long as 10 years. It is mathematically better for one to go for an extended period as money would compound more and do all the work for you if you are willing to stay patient and not break the Fixed deposit.
One still may have the option of premature withdrawal in a Fixed Deposit, meaning they can withdraw the amount before the Fixed deposit completes its full term. It is very highly advised that one asks the deposit consultant about such questions and reads the documents of the scheme very carefully.
Tax is deducted at Source by the Tax provider. The interest income is also taxable in India. For further understanding, read the documents of the scheme you are choosing.
Lastly, it is essential to note that there is a separate viewing of Fixed Deposits for Senior citizens. Their tax rates and ways of working differ in many aspects.
The compounding aspect of safe investments like Fixed Deposits should be used to full utility. One should study the basics of Fixed Deposits thoroughly and get started with the investments by clearly reading said documents of the scheme and speaking to consultants.