Apply Rule 72 to know when your investment will be doubled
Not very long ago Public Provident Fund would offer rates of interest that would double your money in 6 years flat
Doubling one’s investment is a fixation for many. When would my investment become double – is a question on many lips whenever considering an investment option.
Getting confused in a maze of figures to figure it out?
There is no need to go by what anyone assures you. A knowledge of class II arithmetic will allow you to easily find out how long will it take to get your investment doubled in any scheme.
It is called the Rule of 72 and is simplest and most frequently-used equation in the world of investments.
Just divide the number 72 by whatever interest rate of the instrument where you are investing, and the quotient will give you the time needed for your investment to get double.
For example, if your fixed deposit pays you an interest rate of 5.5%, the time that your money will take to double is 72/5.5 which is 13.01. It means if you have invested Rs 1,000, it would become Rs 2,000 after 13.01 years. The only assumption is that the interest rate holds steady for the entire period.
The same rule applies for any investment option, be it a guaranteed-return scheme or a market-related instrument.
If you expect a 10% return from an MF, the time your money will take to get double is 72/10, or 7.2 years.
Naturally, one can employ this rule to compare between different investment options before making a final decision.
Usually, short duration MFs gives a return of about 8.5%. As a result, money takes 72/8.5 or about 8.79 years to double.