Investors are always curious when the invested amount will double, whether it's a mutual fund, a fixed deposit, a recurring deposit, or any other mode of financial instrument. An ideal approach one should opt for is to start investing as early as possible to make their future secure and ready for any unexpected expenses in life. Also, one should not invest the money in one bucket or single financial instrument; a diversified portfolio is the key to success or a good return. By diversifying their money into multiple financial instruments or investment options, investors have the full scope of generating a good return or wealth. An investment should be comprised of risky, fixed, regular, liquid, and debt/bond modes.
After investing the money in any preferable mode of investment, the next question is: when will the money double? Is there any way to find that?
And the answer is yes; that's where Rule 72 comes into play. Smart investors always calculate the possible risk and other aspects like return periods and percentages from time to time so that they can switch or change modes based on current market requirements and risk appetite, along with desired financial goals.
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| Investment Modes - Diversified Portfolio |
What is Rule 72? and how will it help in getting details of the doubling period of the investment?
Rule 72 is a simplified approach where an investor will be in a situation to get the details or determine how long an investment will take to double based on the fixed annual rate of interest in a particular period. This rule can be applied where an investor is focusing on compounding interest rather than withdrawing money or avoiding reinvesting. For example, if an investor opts for re-investing the dividend earned rather than withdrawing the same, this leads to compounding of the earnings, and Rule 72 helps in determining the doubling period.
To calculate Rule 72, an investor needs to divide the number 72 by the percentage rate of return one is expecting for a particular mode of investment.
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| Formula Applies For Rule 72 |
Based on the above Rule 72 formula, let's calculate the doubling period with an example to understand how to validate or apply it in the real-time world. So if the rate of return for a particular investment is 2%, then it will take approx. 36 years to get the invested amount doubled under Rule 72. Similarly, if the rate of return is 12% per annum, then it will take approx. 6 years to get the investment amount to double. The higher the rate of return, the shorter the doubling period. As mentioned earlier, this rule is more accurate if the rate of return is compounding interest rather than simple interest.
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| Based On Rate Of Return - Doubling Year |