Every investor wants their invested money to double over time, so that a strong fund can be prepared for future significant needs, such as retirement, children’s education, or marriage expenses. Often, people get confused when thinking about how many years it will take for their investment to double. A popular formula, known as the Rule of 72, provides an easy answer to this question.
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What is the Rule of 72
The Rule of 72 is a simple mathematical method that can be used to in how many years the money will double in any investment. For this, the interest rate or average return of the investment has to be divided by 72. The number obtained shows the same year in which your amount will double. This formula is very popular among investors because it neither requires complex calculations nor takes much time.
Effect of the Rule of 72 on different investments
If you invest in fixed deposits and the interest rate is 7 percent per annum, then your money will double in about 10.28 years. At the same time, Public Provident Fund, i.e., PPF, is currently getting 7.1 percent interest, so the amount will double in about 10.14 years.
In the stock market, the Nifty 50 gave a return of about 13.5 percent in 2024. In such a situation, money can double in about 5.33 years. On the other hand, in mutual funds that give an average return of 12 percent per annum, the amount can double in just 6 years.
This formula is also useful in inflation and growth, along with investment
The Rule of 72 is not only applicable to investments, but it can also be used in economic calculations like inflation rate and GDP growth. For example, if the inflation rate is 6 percent on average, then the purchasing power of money will be halved in 12 years (72 ÷ 6). Similarly, this formula can also be used to estimate how many years it will take for a country’s economy to double.
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Why is the Rule of 72 special
This formula helps investors estimate when their hard-earned money will double. This helps them make better financial plans and can easily compare different investment options. Its biggest feature is that it neither requires complex calculations nor does it require dependence on any expert.