Every time you invest in a scheme, you can imagine how long it will take to double your money. If you put your money in the right places, it can grow significantly over the years. It can double or even triple, thanks to the power of all Compound Interest. But how long will it actually take? Well, the calculation on the back of the envelope may not be completely accurate down to the last decimal, but it can give a fair idea about your return from any investment. There is a simple rule that will tell you how fast your money can grow – the Rule of 72 and the Rule of 114. Use them judiciously for making investment decisions.
72. rule of
This rule will tell you how many years it will take for your money to double. The formula is simple – divide the interest rate of the scheme by 72 to find out how many years it will take to double your investment. There should be a special rate of return.
Number of years required to double your money = 72 / rate of return
here is an example for you
Let’s say you are investing 50,000 public provident Fund (PPF) this month. The central government has fixed the interest rate for PPF At 7.1 per cent for the July-September quarter. Now, you divide 72 by the rate of interest (7.1 percent) to find the time it takes for Rs 50,000 to become Rs 1 lakh. So 72/7.1 would be 10.14. Therefore, with the interest rate fixed at 7.1 per cent, your money will double in 10.14 years.
how to triple your money
So now if you’re curious to know how long it will take to triple your money, you need to use the rule of 114. It works the same way as the rule of 72. To find out, you need to divide 114 by the interest rate. How many years will it take to triple your returns from investments?
Number of years required to triple your money = 114/rate of return
It will take 16.05 years from PPF account to become Rs 1,50,000 from Rs 50,000 with 7.1 per cent interest rate.
It should be noted that the Rule of 72 takes into account annual returns. It can be applied to all tenures provided the rate of return is compounded annually. So if you apply the same rule to calculate your quarterly or semi-annual compound return, it will not give you an accurate figure.
how much return do you want
You can also use these rules to figure out how much interest you’ll need to double your money at a specific time. As we all have a financial goal in mind while investing, this rule will come in handy.
Rate of return required to double your money = 72/number of years
it works like this
Suppose, you want to double your investment in six years. Divide 72 by 6, which will be 12. So you need to invest in a fund that will give you 12 per cent annual return to double your money in six years.
The Rule of 72 is one of three essential personal finance topics that can help you understand investments and returns. So the next time you see an advertisement that the scheme will double your money, just do this quick calculation to calculate the actual benefit from the plan. The compounding formula works best if you start investing early.
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