Rule of 72: How long will it take for your Rs 50,000 investment to become Rs 1,00,000

What is the Rule of 72?

The Rule of 72 is a straightforward formula that helps estimate the time required for an investment to double at a fixed annual rate of return. It is calculated by dividing 72 by the annual rate of return.

Key Uses of the Rule of 72

• Estimate Investment Growth: Quickly predicts how long it will take to double your investment.
• Simple Calculation: Provides a fast way to assess financial growth.
• Approximations: Offers reliable estimates, although not exact.

Understanding the Rule of 72

This rule calculates the doubling time of money based on a fixed annual rate of return. It can also work inversely to show the impact of inflation, demonstrating how quickly your money's value can halve.

Formula for the Rule of 72

The Rule of 72 formula is:
T ≈ 72 / R
Where:

T = Time required to double the investment.
R = Annual rate of return (%).

Limitations of the Rule of 72

• Most accurate when the annual interest rate is close to 8%.
• Becomes less precise at higher or lower interest rates.

Formula Breakdown

• Basic Calculation: Divide 72 by the annual rate of return to get the estimated doubling time.
• Approximation Symbol (≈): Highlights that the result is an estimate, not an exact figure.

Other Applications of the Rule of 72

• Impact of Inflation: Estimates how long inflation will take to halve the value of money.
• Non-Monetary Growth: Can also assess doubling time for metrics like population growth or GDP.

Benefits of the Rule of 72

• Ease of Use: Simple formula requiring basic math.
• Versatility: Useful for various scenarios, including investment analysis and risk assessment.
• Investment Insights: Helps decide whether to hold or sell investments based on growth timeframes.

How long will it take for your Rs 50,000 investment to become Rs 1,00,000?

At a 12% return, your Rs 50,000 will double to Rs 1,00,000 in 6 years.

 

Other Rates of Return

10% return: 7.2 years

15% return: 4.8 years