Every time you decide to invest in Mutual Funds, bank fixed deposits (FD), Sukanya Samriddhi Yojana (SSY), Public Provident Fund (PPF), you wonder how long it would take to grow your money. There is a simple rule that will tell you how fast your money could grow — Rule of 72.
The government has kept the interest rates on small savings schemes comprising PPF, SSY and other post office schemes unchanged for the sixth quarter in a row for the October-December quarter amid moderating bank deposit rates.
Before you know how much time your money will take to grow, it’s extremely important to decide the goals and investment tenure for which you want to invest. Then comes, shortlisting the schemes based on your goals and returns. Here we will find out how much time it takes for these investment schemes to double your investment. We will use ‘Rule of 72’ to see how fast will these investments double the invested money.
Rule of 72
We will use ‘Rule of 72′ to see how fast these investments will double your money. Rule of 72 is a formula where we divide the number ’72’ with the interest rate offered by the investment scheme to get an idea of how soon can you double your money. Selecting a scheme would be easier once you know which scheme will double your investments faster.
Formula for Rule of 72
Number of years required to double your money = 72/Rate of Return
How long will it take for your investment to double?
Bank FD: Currently, Bank FDs are offering around 5.5% interest to investors. Going by this rate, it will take over 13 years for your money to double as 72/5.5 = 13.09
PPF: PPF interest rate is 7.1% p.a. at the moment. Assuming the PPF interest rate remains unchanged, it will take around 10 years for your money to double as 72/7.1 = 10.14.
SSY: Sukanya Samriddhi Yojana interest rate at the moment is 7.6%. Assuming the interest rate remains unchanged in the future, it will take over 9 years for your money to double as 72/7.6 = 9.47.
The Rule of 72 is useful for financial estimates and understanding the nature of compound interest.
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