Mutual Funds

THE RULE OF 72 — Learn to Double Your Money

Every time someone says they’ve cracked the formula to double a sum of money quickly, we instantly put their advice into the junk pile. This is with good reason, too. There are many people out there who come up with shady or even fraudulent schemes promising to double your money within just a few years.

Investments take time to grow, and there’s really no such thing as a quick buck or a free lunch. Tarrakki not only stands by that belief, but also endorses virtues such as patience, regularity, and resilience, which are a must for every investor.

However, one does want to know if there is in fact a way to double their investment; and if so, how long would it take. In fact, it’s pretty easy to calculate this. All you need to know is the compounded rate of return on your investment. After that, using the Rule of 72, you can derive the number of years it will take for this amount to double, all things remaining constant.

For instance, the compounded rate of return on an investment in a Fixed Deposit could be anywhere between 6.5% to 8%. On the other hand, the compounded rate of return on a Mutual Fund investment could easily be about 15%.

Now, let’s say you invested ₹1,00,000 in a mutual fund that gives you a 15% compounded rate of return. Let’s calculate the time it would take for this amount to double, using the Rule of 72.

Rule of 72 Formula to Calculate the Number of Years: (n = 72/r)

Here, ‘n’ is the number of years, and ‘r’ is the rate of return.

So, for a mutual fund that gives a 15% rate of return, n = 72/15.
This means, n = 4.8

You can safely say that if the rate of return on your ₹1,00,000 investment remains constant at 15%, your money will double itself to ₹2,00,000 at the end of 4.8 years.

On the other hand, if you invest this money in a Fixed Deposit at a 6.5% compounded rate of return, it would take approximately 11 years (n = 72/6.5) for your money to double.

Alternatively, if you invest this money in Tarrakki ZYAADA at a 7.5% compounded rate of return, it would take lesser time for your money to double, i.e. approximately 9 years.

As you can see, the higher the compounded rate of return, the lesser time it takes for your money to double. If you have a fixed time horizon by when you want to double your investment, you can use this formula to calculate the rate of return you need, in order to achieve your financial goals.

E.g. If you want to double your ₹1,00,000 within 2 years, you would need a compounded rate of return of 36%.

Rule of 72 Formula to Calculate the Required Rate of Return: (r = 72/n)

r = 72/2
r = 36

Such high rates of return are usually next to impossible to achieve through commonly used investment options.

So, the next time someone approaches you and says they’ll double your money within no time, use this formula and check the feasibility of the proposition on your own. You don’t have to be an investment expert or finance wiz, or even a mathematician to be able to crack this.

Make it a habit to use this simple formula on a day to day basis, when considering where to invest your money.

If you’re still confused, use the Tarrakki App’s AI based smart recommendations to find the best mutual funds for yourself.

Download the Tarrakki App for Wealth Management for Android and iOS now.

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