Finance

Simple interest is calculated only on the original principal, so it grows by the same amount each period. Compound interest is calculated on the principal plus any interest already accumulated, so it grows faster over time — this effect of earning interest on interest is the core of long-term investing.

An EMI (equated monthly installment) is a fixed payment that repays a loan over its term, with each payment split between interest and principal. Early on most of the payment covers interest, and as the balance falls a larger share goes toward principal, until the loan is fully paid off.

APR (annual percentage rate) is the simple yearly rate and typically excludes the effect of compounding, while APY (annual percentage yield) includes compounding within the year. Because of compounding, APY is always equal to or higher than the stated APR for the same nominal rate.

ROI is the net gain from an investment divided by its cost, usually shown as a percentage: ROI = (final value − initial cost) ÷ initial cost × 100. It is simple and useful for comparison, but on its own it ignores how long the investment took to earn that return.