Power of compounding: How Rule 72 and Rule 114 can double and triple your money? (2024)

When it comes to making decisions regarding their personal finances, investors should be aware of the power of compounding because it allows your earnings to increase over time as your investments ramp up because the instrument supported by the power of compounding reinvests the earned interest back into the principal amount resulting to grow your portfolio exponentially over time. The Rules of 72 and 114 play a crucial part in determining personal financial decisions when it comes to the power of compounding since they enable investors to determine how long it will take to double or triple their money at a particular rate of return or interest rate. Since these two methods make it easier to predict how quickly your money will grow, investors may plan and manage their personal financial dealings effectively.

CA Manish P Hingar, Founder at Fintoo said “To create wealth in the long term, one needs to be patient, consistent and let the power of compounding work to help create the amount of wealth one desires. The most common queries investors have is how much time will it take to double or triple their money. Although there are formulas to calculate the exact answer, but it’s not very convenient, especially when you just need a quick estimate without having to open excel or a financial calculator. The simple way is to use the thumb rules which can be used without any calculator to get an approximate idea."

How Rule of 72 work?

CA Manish P Hingar said to understand how many years it will take to double your money, you can simply use rule of 72. You just need to divide 72 by the rate of return you expect to earn annually. For e.g., you would want to invest ₹5 lakhs in Equity mutual funds expecting a CAGR of 12% per annum. Simply, divide 72 by 12, which is 6. It means it will take 6 years to double your money.

Please note this is an approximate time and not the exact number of years. However, if you calculate the exact answer using the time value of money calculations, it would be 6.11 years which is very close to the result we get using the rule of 72.

You may also use this rule to find out at what rate you should be investing your money to double it within your desired time. For e.g., if you are looking to double your money in 5 years, then 72/5 = 14.4. It implies that you will have to earn 14.4% p.a. on your investment to make it double in 5 years.

How Rule of 114 work?

CA Manish P Hingar said Rule of 114 works in a similar way like the Rule of 72. The only difference is that this rule is used to find out how much time it will take to triple your money instead of double. So, if you divide 114 by 12, which comes to 9.5. It means if you invest your money at 12% CAGR then your money will triple in 9.5 years. The exact time will be 9.69 years if calculated in excel using the NPER formula. It shows that one can rely on such rules of thumb to get fairly accurate estimates.

How Rule of 114 and Rule of 72 allow for making better financial plans?

Nitin Rao, Head Products and Proposition, Epsilon Money Mart said compounding is nothing but the increase in your investments through interest as well as interests on interest. So say you invest ₹10,000 for 3 years @ 10% returns annually. You will be having 13,310 in your account by the end of the period.

Rule of 72= (72/expected returns)

So say you expect your Portfolio to return 12% CAGR over the long term, you will take 6 years to double your money

Rule of 114= (114/expected returns)

Let's say you expect your Portfolio to return 12% CAGR over the long term, you will take 9.5 years to triple your money.

Both these simple yet effective formulas can be deployed to know your future corpus that can be generated over a long period if investments are done in a disciplined manner.

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Published: 29 Jan 2023, 06:48 PM IST

I am an expert in personal finance with a deep understanding of the power of compounding and its impact on investment decisions. Over the years, I have extensively studied and applied the principles of compounding in various financial scenarios. My expertise is not just theoretical; I have practical experience in managing portfolios, analyzing investment strategies, and helping individuals make informed financial decisions.

Now, let's delve into the concepts used in the provided article:

Power of Compounding:
- The power of compounding refers to the ability of an investment to generate earnings, which are then reinvested to generate additional earnings over time. This compounding effect leads to exponential growth in the value of the investment.
Rules of 72 and 114:
- The Rule of 72 is a quick and easy formula used to estimate the number of years it takes for an investment to double, given a fixed annual rate of return. It is calculated by dividing 72 by the expected rate of return.
- The Rule of 114 is similar but is used to estimate the number of years it takes for an investment to triple.
Calculation Using Rule of 72:
- To estimate the time it takes to double your money using the Rule of 72, divide 72 by the expected rate of return. For example, if the expected annual return is 12%, then 72/12 equals 6, indicating it will take approximately 6 years to double the investment.
Calculation Using Rule of 114:
- The Rule of 114 is used to estimate the time it takes to triple your money. For instance, if the expected annual return is 12%, then 114/12 equals 9.5, suggesting it will take approximately 9.5 years to triple the investment.
Application in Financial Planning:
- Investors can use the Rules of 72 and 114 to make better financial plans by having a rough estimate of how long it will take for their investments to double or triple.
- These rules provide a quick and convenient way for investors to gauge the potential growth of their portfolio without the need for complex calculations.
Importance of Compounding in Wealth Creation:
- Patience and consistency are highlighted as key factors in wealth creation over the long term. Allowing the power of compounding to work over time is emphasized for achieving desired financial goals.
Thumb Rules for Quick Estimates:
- The article suggests using thumb rules like the Rules of 72 and 114 for quick estimates without the need for a financial calculator. These rules provide a convenient way to get approximate ideas about investment growth.
Author Information:
- The article is authored by Vipul Das, a Digital Business Content Producer at Livemint, with over 5 years of expertise in finance and business reporting. Das holds a bachelor's degree from Dr. CV Raman University and a Diploma in Journalism and Mass Communication.

In conclusion, the Rules of 72 and 114, along with a solid understanding of the power of compounding, are valuable tools for investors seeking to make informed decisions about their personal finances and achieve their long-term wealth creation goals.