Rule of 72: How long will it take for your Rs 25 lakh investment to become Rs 50 lakh? Know through this investment rule
Discover how the Rule of 72 helps you estimate the time it takes for your Rs 25 lakh investment to double to Rs 50 lakh based on annual returns.
The Rule of 72 is a powerful yet simple formula that helps investors estimate how long it will take for their investments to double. If you’ve invested Rs 25 lakh and are curious about when it will grow to Rs 50 lakh, this rule offers an easy solution. By dividing 72 by your expected annual rate of return, you can calculate the time required for your wealth to double. Let’s explore this investment strategy in detail!
What is the Rule of 72?
The Rule of 72 is a simple formula that estimates how long it will take for your investment to double at a fixed annual rate of return. You calculate it by dividing 72 by the annual rate of return.
Key Uses of the Rule of 72
- Estimate Investment Growth: Quickly predicts when your investment will double.
- Simple Calculation: A fast way to check your financial growth trajectory.
- Approximations: While not exact, it provides a reliable estimate.
Understanding the Rule of 72
This rule calculates the time needed for your money to double, factoring in an annual rate of return. It also works inversely to show how inflation can halve your money’s value over time.
Formula for the Rule of 72
The formula is:
T≈R72
Where:
- T = Time to double your investment.
- R = Annual rate of return (%).
T≈R72
Where:
Limitations of the Rule of 72
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Most accurate when the interest rate is close to 8%.
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Becomes less precise with significantly higher or lower rates.
Most accurate when the interest rate is close to 8%.
Becomes less precise with significantly higher or lower rates.
Formula Breakdown
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Basic Calculation: Divide 72 by the annual rate of return to estimate the time to double.
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Approximation: The symbol "≈" signifies that the rule provides an estimate, not exact results.
Basic Calculation: Divide 72 by the annual rate of return to estimate the time to double.
Approximation: The symbol "≈" signifies that the rule provides an estimate, not exact results.
Other Applications
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Helps estimate the "halving time" for the value of money under inflation.
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Can assess growth in non-monetary metrics like population or GDP.
Helps estimate the "halving time" for the value of money under inflation.
Can assess growth in non-monetary metrics like population or GDP.
Benefits of the Rule of 72
- Ease of Use: Requires only basic math, accessible to all investors.
- Versatility: Works for multiple scenarios, including market growth and risk management.
- Investment Insights: Guides decisions on when to sell or hold investments.
Time for Rs 25 lakh to double to Rs 50 lakh
Using the Rule of 72, divide 72 by the annual rate of return:
- At 6% return: Time = 672=12 years.
- At 9% return: Time = 972=8 years.
- At 12% return: Time = 1272=6 years.
Answering the Question
The time it will take for your Rs 25 lakh investment to double to Rs 50,00,000 depends on the rate of return:
- With 6% return, it will take 12 years
- With 9% return, it will take 8 years
- With 12% return, it will take 6 years