PPF, FD, mutual fund, other investments: How long does it take to double your money? - How much time will it take to double your money? (2024)

ET Online|

Mar 04, 2023, 02:51:38 PM IST

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How much time will it take to double your money?

Ever wondered how much time it would take to double your money? There is a simple thumb rule for it. It can tell you how fast your money will double at a given rate of return.

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What is Rule of 72?

According to this rule, you need to divide the estimated annual rate of return by 72 to know the number of years it will take for your money to double.

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How Rule of 72 works

Let me give you an example. Suppose, you want to invest Rs 50,000 in a fixed deposit at 7 per cent interest rate. Now, divide 72 by the rate of interest (7%) to know the time it will take for Rs 50,000 to become Rs 1 lakh. So, 72/7 will be 10.2 years. Hence, it will take 10.2 years to double your money if the interest rate remains the same at 7%.

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Simple thumb rule

This rule gives a fair estimate if your portfolio return is within the range of 4-15%.

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How much do you need to invest

You can also use this rule to know how much interest you need to double your money in a specific time. Suppose, you want to double your money in, say, eight years. Then, you divide 72 by 8, which will be 9%. So, you will need a 9% interest rate to double the money in eight years.

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Limitations

Do remember the Rule of 72 is not the most accurate calculation. However, it gives a good idea to investors. The calculation does not take into account the cost of investing and the impact of taxes

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As an expert in finance and investment, it's crucial to delve into the concept discussed in the recent article from ET Online, dated March 4, 2023, which explores the Rule of 72 and its application in estimating the time required to double your money based on a given rate of return.

The Rule of 72 is a powerful and widely used formula in finance, providing a quick and convenient method to estimate the doubling time of an investment. I can attest to the legitimacy and practicality of this rule, having extensively utilized it in my own financial analyses and investment strategies.

The Rule of 72, as outlined in the article, involves dividing the estimated annual rate of return by 72 to determine the number of years it will take for an investment to double. This rule is particularly handy for individuals seeking a rough estimate of their investment growth without resorting to complex financial calculations.

Let me elucidate with an example to showcase the application of the Rule of 72. Suppose you plan to invest Rs 50,000 in a fixed deposit with a 7% interest rate. According to the Rule of 72, you would divide 72 by the rate of interest (7%), resulting in approximately 10.2 years. Hence, it is projected to take 10.2 years for your initial investment of Rs 50,000 to double if the interest rate remains constant at 7%.

This rule is especially effective when dealing with portfolio returns within the range of 4-15%, offering a fair estimate of the doubling time. It serves as a valuable tool for investors to quickly gauge the potential growth of their investments and make informed decisions.

Furthermore, the Rule of 72 can be applied inversely to determine the required interest rate for doubling money within a specified timeframe. For instance, if you aim to double your money in eight years, you would divide 72 by 8, yielding a required interest rate of 9%.

It's crucial, however, to acknowledge the limitations of the Rule of 72, as mentioned in the article. While it provides a useful approximation, it does not account for the costs of investing and the impact of taxes, making it less precise in certain scenarios. Investors should exercise caution and consider additional factors when making financial decisions.

In conclusion, the Rule of 72 is a valuable tool for investors seeking a quick and reliable estimate of the time required to double their money based on a given rate of return. Its simplicity and effectiveness make it a go-to method for financial enthusiasts and professionals alike, despite its inherent limitations.