Bank FD, PPF, SSY, Mutual funds: Know how fast will your money double?
New Delhi: The government has kept the interest rates on small savings schemes unchanged for the October-December quarter amid moderating bank deposit rates. Falling interest rates are making investors explore other investment options to earn better returns. Which one should you choose? First decide your investment tenure and the goal(s) for which you want to invest. For an instance, if you were investing in bank FDs for your daughter’s higher studies, you can switch to Sukanya Samriddhi Yojana or mutual funds.
Once you have shortlisted the schemes based on your goals and risk profile, you may also look at the return differential to choose the one that offers the best returns. For an easy comparison, here we will find out how much time it takes for these investment instruments to double your investment. Selecting a scheme would be easier once you know which scheme will double your investments faster.
This is a simple rule of 72 tells you how fast your money will double. It is important to determine your goals and investment period before you know how much money will double. Let us now use the ‘Rule of 72’ to find out how fast these investments can double the money.
We will use ‘Rule of 72′ to see how fast will these investments double the invested money. Rule of 72 is a formula where we divide the number ’72’ with the interest rate offered by investment instrument to get an idea on how soon can you double your money with that particular investment. Let’s take a look:
Mutual funds and Sukanya Samriddhi Yojana are the fastest in giving you 100% returns
Bank FDs at 5.5% will take over 13 years to double your money. (72/5.5 = 13.09)
PPF is offering an interest rate of 7.1% p.a. PPF 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%.
Some of the schemes listed above might not provide a long maturity period to let you double your investments at the existing interest rates but this exercise will help you choose an alternative of bank FDs and also understand how much to expect from your investments. If not a complete switch, you may add these investments to complement your ‘only bank FD’ portfolio to help you earn better returns on your investments.
Please note the Rule of 72 provides an approximate idea and assumes one-time investment.