Well, learn the rule of 72

India Today - - SMART MONEY | RETURNS CALCULATOR - By Renu Ya­dav

Ever won­dered if there is a for­mula to dou­ble your money? Turns out there is—it is called the Rule of 72. Ap­ply it, and you will know the num­ber of years it will take for your money to dou­ble.

The for­mula is sim­ple, and the magic num­ber is 72. Di­vide 72 by the an­nual rate of re­turn on an in­vest­ment to de­ter­mine roughly how long it will take your to dou­ble your money.

For ex­am­ple, if you are get­ting an 8 per cent re­turn on an in­vest­ment, it will take around nine years for your in­vest­ment to dou­ble in value. How­ever, shift that in­vest­ment to an in­stru­ment that gives a 15 per cent re­turn and you can dou­ble your money in just five years. The logic is ob­vi­ous: the higher the rate of re­turn on an in­vest­ment, the less time it will re­quire to dou­ble in value.

The for­mula, there­fore, al­lows you to not only fig­ure out the num­ber of years your in­vest­ment will dou­ble in, but also helps you cal­cu­late the re­quired rate of re­turn on an in­vest­ment for it to dou­ble in a par­tic­u­lar time pe­riod. So, if you want to dou­ble your money in three years, you need to in­vest in an in­stru­ment that yields 25 per cent re­turn per an­num. Now that you know the for­mula, let’s look at some sav­ings in­stru­ments and the time in which in­vest­ments in them will dou­ble.

Fixed De­posit: Cur­rently, banks are of­fer­ing an in­ter­est rate of around 6.25 per cent per an­num on de­posits with a ma­tu­rity pe­riod of more than five years. In­vest in an FD now and it will take 11 years for the money to dou­ble. The in­ter­est on FDs, how­ever, is tax­able as per the slab an in­di­vid­ual falls un­der.

Pub­lic Prov­i­dent Fund: The in­ter­est rate on this very pop­u­lar sav­ings in­stru­ment has been re­duced to 7.9 per cent for the quar­ter end­ing June 2017. In­ter­est rates on all small sav­ings schemes, in­clud­ing PPF, are re­viewed on a quar­terly ba­sis de­pend­ing on the yield from govern­ment se­cu­ri­ties, and are, there­fore, sub­ject to change. As­sum­ing, how­ever, that your PPF will con­tinue to earn 7.9 per cent in­ter­est, it will take nine years and one month for the sum in­vested to dou­ble. On the plus side, in­ter­est earned on PPF is en­tirely tax-free and in­vest­ments up to Rs 1.5 lakh get you tax ex­emp­tion un­der Sec­tion 80 C of the In­come Tax Act.

Kisan Vikas Pa­tra: In­vest­ment in this scheme fetches an in­ter­est rate of 7.6 per cent per an­num. With a ma­tu­rity pe­riod of 113 months, your money gets you dou­ble the in­vest­ment in nine-anda-half years. The in­ter­est earned, how­ever, is tax­able in the year it is re­ceived.

Na­tional Sav­ings Cer­tifi­cate: Also el­i­gi­ble for tax ex­emp­tion, sav­ings in this in­stru­ment get you a re­turn of 7.9 per cent per an­num in in­ter­est. It will take nine years and a month for your money to dou­ble. The in­ter­est earned is tax­able.

Se­nior Cit­i­zens Sav­ings Scheme: Of­fer­ing an in­ter­est rate of 8.4 per cent per an­num, in­vest­ment in this scheme gets dou­bled in eight years and six months.

Eq­uity mu­tual fund: Mar­ket-linked in­stru­ments, they in­vest in shares of com­pa­nies and don’t of­fer any fixed rate of re­turn. Eq­ui­ties can de­liver higher re­turns but carry high risk. Over the past five years, the S&P BSE Sen­sex, a broad eq­uity mar­ket in­di­ca­tor, has posted an an­nu­alised re­turn of 13 per cent. At this rate of re­turn, your money can dou­ble in five-and-a-half years. Ad­di­tion­ally, gains in eq­ui­ties are com­pletely taxfree af­ter a year.

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