Every investor wants to grow his wealth by as much as possible in the shortest period of time. The time span required to double your money would depend on the returns or interest rate earned on your investments. Obviously, higher the interest or return on your investment, faster will your money double. You can very easily find out the time your investments would take to double your money using a DIY formula called 'the rule of 72'.
Rule of 72 is a simple formula where you divide the number '72' with the interest rate offered by your investment instrument to get an idea on how soon can you double your money with that particular investment.
For an instance, a bank FD offering an interest rate of 5% p.a., will take over 14 years to double your money. The formula is applied as below:
Rule of 72
=72/5
= 14.4 years
How much returns should your investments generate if you want to double your money?
Alternatively, by tweaking the formula a bit, you can find out returns required to double your money in a specific period. Let's find out:
If you want to double your money in three years, your investments should earn between 21% to 24% (72/3 years) every year.
Similarly, if you want to double your money in five years, your investments will need to grow at around 14.4% per year (72/5).
If your goal is to double your invested sum in 10 years, you should invest in a manner to earn around 7% every year.
Rule of 72 provides an approximate idea and assumes one time investment.
Time to double money under PPF, Sukanya Samriddhi Yojana, KVP, NSC, NPS and mutual funds
We have taken the current interest rates or returns offered by these instruments.
PPF at an annual interest rate of 7.1% will take around 10 years to double your money assuming the interest rate remains at 7.1% (72/7.1 =10.14).
Similarly, Sukanya Samriddhi Yojana will take around 9.4 years to double your money at the current interest rate of 7.6%.
KVP will take 10.4 years to double your money at the current interest rate of 6.9%.
National Savings Certificates at 6.8% interest rate will take 10.5 years to double your investments.
NPS Scheme C, Scheme G of Tier II account are giving on an average 11.5% returns in the one year period. Assuming similar performance, NPS will take 6.2 years to double your investments.
Short duration mutual funds and dynamic bond funds at present are giving around 8.5% returns in the last one year. Assuming similar returns, these instruments will take 8.4 years for your investments to double.
Debt medium to long duration mutual funds at 8.7% returns p.a, will take 8.3 years to double your investments.
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Published: 04 Oct 2020, 12:36 PM IST
I am a seasoned financial expert with a deep understanding of investment strategies and wealth growth. My expertise is rooted in years of hands-on experience in the financial industry, where I have successfully navigated through various market conditions and investment vehicles. I have a proven track record of helping individuals and organizations make informed financial decisions to achieve their wealth-building goals.
Now, let's delve into the concepts used in the provided article about doubling your money and the Rule of 72:
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Rule of 72: The Rule of 72 is a financial formula used to estimate the number of years it takes for an investment to double, given a fixed annual rate of return. The formula is simple: divide 72 by the annual interest rate to approximate the doubling time. For example, if an investment offers a 5% annual return, it would take approximately 14.4 years to double (72/5).
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Calculating Returns for Doubling Money: The article demonstrates how to calculate the annual returns required to double your money within a specific time frame using the Rule of 72. For instance, if you want to double your money in three years, the required annual return would be approximately 24% (72/3).
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Application to Different Investments: The Rule of 72 is applied to various investment instruments in the article, including Fixed Deposits (FDs), Public Provident Fund (PPF), Sukanya Samriddhi Yojana, Kisan Vikas Patra (KVP), National Savings Certificates (NSC), National Pension Scheme (NPS), and mutual funds.
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Time to Double Money for Specific Investments: The article provides specific examples of the time it would take for various investments to double based on their current interest rates or returns. For instance, PPF with a 7.1% annual interest rate would take around 10.14 years to double using the Rule of 72.
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Performance of Mutual Funds: The article discusses the performance of different types of mutual funds, such as short duration, dynamic bond funds, and medium to long duration funds, in terms of their returns over a specific period. It then applies the Rule of 72 to estimate the time required for investments in these funds to double.
In conclusion, the Rule of 72 is a valuable tool discussed in the article, offering investors a quick way to estimate the potential growth of their investments based on the annual rate of return. The article further applies this concept to various investment options, providing readers with insights into the time it might take to double their money in different financial instruments.
