Simple interest means that the principal is fixed, and the interest is settled in one lump sum after maturity, and the interest generated by the principal is no longer calculated.

Compound interest means that the principal and interest of the previous period are used as the principal of the next period to calculate the interest.

Give a simple example to illustrate,

For example, you have a principal of 10000 yuan, a term of 10 years, and an interest rate of 20%.

In the case of pure profit, the assets after 10 years =10000 * (1+20% *10) = 30000.

In the case of compound interest, assets after 10 =10000 * (1+20%) 20 = 383376.

Under the same term and interest rate, the compound interest income is higher than the simple interest.

What is the difference between compound interest and simple interest?

Compound interest will convert the income of each period into the principal of the next period.

Obviously, the income of the fund is compound interest, and the fund will update its net value after the close of each trading day. If you have trading software, it will clearly show the daily income.

This part of the income will be included in the total assets of the fund. On the next trading day, the calculation benchmark value of the price increase and decrease is the final total assets of the previous day, including the income of the previous day.

In addition, the fund will pay dividends irregularly. As long as you choose to reinvest in dividends, the income obtained on the day of dividends will be automatically transferred to the total assets of the next trading day, and the price will be calculated on this basis.

So the fund has compound interest.

If the fund wants to realize compound interest, the way of fixed investment can realize compound interest. The principle is simple. For example, looking for two funds, an investment fund A, has certain volatility; The other fund, B, is used for capital preservation and savings, which will basically remain unchanged for one year. Assuming a fixed monthly investment, realize annual compound interest.

In the first year, according to the normal situation, I will make a fixed investment in Fund A every month. By the end of the year, all the funds obtained will be transferred to Fund B (equivalent to cash withdrawal operation).

In the second year, the equal amount of 12 of Fund B will be transferred to Fund A, except for the fixed amount invested in Fund A every month (this operation is equivalent to reinvesting the principal and interest income of the first year into Fund A in addition to the fixed amount saved every month). Until the end of the second year, all the funds of Fund A were transferred to Fund B (equivalent to another cash withdrawal operation).

In the third year, the funds in Fund B will also be divided into twelve equal parts, and then they will be invested in the same way as in the second year, and so on.