The Rule of 72 is a simple formula that helps estimate how long it will take for your money to double through compound interest.
For instance, if you invest ₹1,00,000 with an expected annual return of 10%, how many years will it take for your money to double? According to the Rule of 72, you can calculate this by dividing 72 by the expected rate of return.
Doubling Time = 72 / Rate of Return
In this example, the expected return is 10% per year, so:
Doubling Time = 72 / 10 = 7.2 years
This means your investment is expected to double in 7.2 years. Keep in mind, this rule applies to investments offering compound interest.
You can also use the Rule of 72 to determine the interest rate required for your money to double within a specific time frame. For example, if you want your investment to double in 6 years, the formula is:
Rate of Return = 72 / Doubling Time
So, for 6 years:
Rate of Return = 72 / 6 = 12% per annum
This quick calculation is handy for financial planning and evaluating investment growth.