HOW LONG BEFORE MY MONEY DOUBLES?
Well, learn the rule of 72
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.