Whether you are a risk-averse investor or a senior citizen, it is strongly preferred to start investing in risk-free investments. Talking about risk-free instruments, bank fixed deposits, small savings schemes, or debt mutual funds are the best to generate great returns in both short term and long term depending on your personal finance goal. But, when investing in an instrument or investment product, we first consider the applicable interest rate or prevailing return, not the amount of time we will double our money.
Here, you might be thinking that calculating how long it will take to double your money will be time consuming or troublesome. But to cut it short, let me remind you about Formula 72 that you must have heard before. So if you have invested or are going to invest in bank fixed deposits or small savings schemes, let us now use the formula to find that your invested money will double.
What is Rule 72?
To avoid any delay or hassle in calculating the period in which you will double your money, Rule 72 Finance is going to be your best personal finance partner, let me explain to you how. The rule simply gives an investor an estimate of how long it will take for him to double his deposit or investment. By adopting or using this rule, you can easily see whether you are going to achieve your personal finance goal or not. To arrive at the answer, divide 72 by the investment instrument’s interest rate, or the prevailing interest rate. Let’s apply Rule 72 to different types of investment vehicles to see how long it will take to double your money.
Bank fixed deposit
Fixed deposit is a safe investment strategy that offers consistent interest rates without any market risk. Fixed deposits come with a maturity period of 7 days to 10 years. And depending on the tenure chosen, the prevailing interest rates vary. Let’s say you want to invest Rs 5 lakh in a bank fixed deposit with an interest rate of 7.25 per cent, which is now the highest prevailing rate offered by Suryoday Small Finance Bank.
Divide 72 by the rate of interest (7.25 per cent) to make the period from Rs 5 lakh to Rs 10 lakh in 9.93 years or 119 months; 72/7.25 = 9.93 approx. This formula can also be used to determine what interest rate you would need to double your investment over a given period. Let’s say you want to double your money in five years, you’ll need an interest rate of about 14%, dividing 72 by 5 equals 14.4. This rule can be used by all types of investors, whether regular or senior citizens.
Senior Citizen Savings Scheme
The government had recently announced that interest rates on small savings accounts would remain unchanged for the quarter ended September 30, 2021. The Senior Citizen Savings Scheme (SCSS) now offers an interest rate of 7.4 per cent (payable quarterly) among small savings schemes. This plan is designed for senior citizens who want to build a substantial retirement corpus.
Therefore, as I said earlier, senior citizens can use Rule 72 to determine the time period during which their deposits will double. Formula 72 predicts that a senior citizen’s investment will double in 9.72 years or 116 months if the interest rate remains constant during the investment period. SCSS comes with a maturity period of 5 years, so to double your money, you need to keep the account open for an additional five years after maturity.
Public Provident Fund (PPF)
Among debt instruments, PPF is one of the best and safest bets. Due to its high interest rate of 7.1% and EEE (exempt-exempt-exempt) status, it is mostly considered for investment by long-term investors. Investors should be aware that PPF interest rates are declared on quarterly basis and are exempted from tax. If one assumes a constant interest rate of 7.1 percent over the investment period, his money will almost double in 10.14 years or 122 months; 72/7.1= 10.14.
Sukanya Samriddhi Account
When it comes to investing for your girl child, Sukanya Samriddhi Yojana or SSY is considered to be the best. This is the only scheme among the small savings schemes of India Post which offers the highest rate of interest. For the quarter ended September 30, 2021, SSY will continue to fetch an interest rate of 7.6%. If the interest rate remains constant during the deposit term, the investor’s deposit will double in 9.47 years or 113 months; 72/7.6 = 9.47.
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