Investing in Bank Fixed Deposits (FDs), Mutual Funds, Sukanya Samriddhi Yojana (SSY) and Public Provident Fund (PPF) the question arises as to how long it will take for it to double. There is a simple rule for this, which can be found in how much time your amount will double. This is called Rule 72.
The government has not changed the interest rates for small savings schemes like PPF and SSY for the sixth consecutive quarter for the October-December quarter. Bank deposit rates are coming down.
It is important for you to decide the time period to meet the goals for which you want to invest. After this the scheme can be decided based on your goals and returns.
Rule 72
This is a formula in which the number 72 is divided by the interest rate offered by the investment scheme. This gives an idea of how long it will take for your amount to double. Knowing this makes it easy to choose the scheme.
Number of years required to double your amount = 72 / Rate of Return
Bank FD – At present, interest of about 5.5 percent is being received on fixed deposits of banks. According to this interest racket it will take more than 13 years for your amount to double.
72/5.5 = 13.09
PPF – The annual interest rate on PPF is currently 7.1 percent. According to this rate, it will take about 10 years for your amount to double.
72/7.1 = 10.14
The interest rate on SSY – Sukanya Samriddhi Yojana is 7.6 percent. According to this rate your amount will double in a period of a little more than 9 years.
72/7.6 = 9.47
Rule 72 is helpful in making financial projections as well as understanding how compound interest works.
