For most investors, amassing wealth to meet their goals is important, be it increasing your net worth, creating a good retirement fund, funding your or your children’s education, building a wedding fund, and more. However, most may not know where to begin, or how.
To guide in this, we bring you a simple do-it-yourself (DIY) rule of thumb known as the “Rule of 72”.
What is the Rule of 72?
The ‘Rule of 72’ provides investors a basic calculated estimate of how many years it would take to double your money in any particular investment tool. The maths is simple: Divide the rate of returns by 72, the answer is the number of years it would take you to to double your investment in that particular instrument.
According to Investopedia, The Rule of 72 is “handy” for a quick mental guage of the approximate value of an investment. Key highlights:
Here’s how you can use it for everyday investments:
- Fixed deposits (FDs): Most bank FDs range from 7 days to 10 years, with varying interest rates. For banks such as State Bank of India and ICICI Bank, you can get anything between 3-7 per cent on FDs. Thus, if you intend to invest ₹1 lakh in a bank FD with an interest rate of 7 per cent per annum, let’s calculate how long it would take to double your money using Rule of 72: 72/7 = 10.28 years.
- Public Public Provident Fund (PPF): For the current financial year, the interest on PPF is 7.1 per cent, which using the Rule of 72, will also take you around 10 years to double investment: 72/7.1 = 10.14 years.
- What about equities? If we consider Nifty50, it has given a 13.5 per cent return in 2024, and 80 per cent in five years. So, an investment of ₹1 lakh in equities will double ( ₹2 lakh) in five years assuming a 5.33 per cent interest rate. The formula is applied as below: 72/13.5 = 5.33 years.
- Mutual funds: Disciplined investment in mutual funds are expected to give around 12-15 per cent returns.Which means that an investment of ₹1 lakh in MFs will double ( ₹2 lakh) in six years assuming a 12 per cent interest rate: 72/12 = 6 years
Disclaimer: We advise investors to check with certified experts before making any investment decisions.