Rule 72: Know How Much Time It Takes To Double Your Investment Returns

Rule 72 in finance is recommended by investment advisors to help investors prevent any sort of delay in achieving their financial goals. The rule basically specifies an investor how long it will take for his or her investment to double. Thus, by applying Rule 72 to your investment instrument, you can determine whether or not the investment strategy can help you to achieve your financial goal. Divide 72 by the interest rate provided by the investment instrument to conclude at the result. For example PPF interest rate is now 7.1 percent, so it will take 10.14 years (72/7.1 = 10.14) to double the money using the Rule 72 calculator, if the PPF interest rate stays constant. The easiest way to do this is to figure out how long each investment instrument takes to double your money. It would be easier to choose a scheme until you know which one will double your money the earliest. Let's glance at Rule 72 using a bank FD as an example. Let's say you want to invest Rs 5 lakh in a bank fixed deposit with a 6% interest rate. To calculate the period it will take for Rs 5 lakh to become Rs 10 lakh, divide 72 by the interest rate (6%), 72/6 equals to 12. As a result, if the interest rate on that particular bank FD remains constant for the next 12 years, you will have doubled your money. You can also use this rule in reverse to figure out how much interest rate you'll need to double your money in a particular period. For instance, suppose you want to double your money in three years. 72 divided by three equals 24. To double your money in three years, you'll need a 24 percent interest rate. Now let's apply Rule 72 to different investment vehicles to calculate how much time it will take to double your investments.

Bank FD: At present banks leading banks such as SBI, HDFC, Axis and ICICI banks are providing an interest rate at around 5%. Hence, by applying Rule 72 (72/5) it will take over 14 years for your money to double.

Public Provident Fund (PPF): The current PPF interest rate is 7.1 percent per annum. If the PPF interest rate stays constant, the capital will double in around 10 years, as 72/7.1 equals to 10.14.

Sukanya Samriddhi Yojana (SSY): At present SSY is providing an interest rate of 7.6%. If the interest rate remains constant, it will take approximately 9.4 years for the investment to double, as 72/7.6 equals to 9.47.

Kisan Vikas Patra (KVP): KVP has a current interest rate of 6.9%, which is compounded yearly. In ten years and four months, KVP promises to nearly double your investment. At the present interest rate of 6.9%, it will take 10.43 years to double your money using the Rule of 72.

National Savings Certificate (NSC): The interest rate on National Savings Certificates is presently 6.8%. If the rate stays unchanged in the future, it will take 10.5 years for your contributions to double.

Rule 72 does not have a precise figure, but it does ensure that one has a rough estimate of his or her investment objective and the time required to achieve it. The thumb rule is typically applied to fixed-rate investments rather than volatile asset categories such as stocks, mutual funds, and so on.