Discounting
✓ Last verified 14 Sep 2026
The short version
Discounting is the reverse of compounding - it converts a future rupee amount into what that amount is worth in today's money, using an assumed rate of return.
Compounding answers 'what will ₹1 today be worth in 10 years?' Discounting answers the opposite question: 'what is ₹1 received 10 years from now worth today?' Both use the same rate, just applied in opposite directions. This matters whenever you're comparing money that arrives at different times - a lump sum offered today versus the same-looking amount promised in 5 years isn't a fair comparison until the future amount is discounted back to today's value. It's the mechanism behind Present Value, Net Present Value, and how insurers and pension calculators value a future payout in today's terms.
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