The whole idea of investing our surplus reserves is to earn that extra bit but not at the cost of the capital deployed if you are marked with extreme caution too i.e. do not have the penchant for high risk. And ify ou basis the profile as well short term goal are able to bet on a certain investment vehicle, here we may help you in ascertaining which product can likely double your wealth the fastest.
Here in the financial planning world to make this estimation possible a rule referred as 'Rule of 72' applies. Now to head on with our evaluation we shall first go about understanding this rule:
What is ‘Rule of 72’ in Financial Planning?
It is a simple rule that involves a computation wherein the number ‘72' is divided by the interest on that instrument to get a briefing on the timing it will take from the investment to earn you double the invested money. And here in a brief idea with close promixity can be expected that takes into account one time investment
So, here is given the timeline for doubling your money for different avenues:
1. Bank FD:
If we take into account most secure FDs with a public or large private run banks, they for a period of 1 year are offering 5 percent return. So, with bank fixed deposits your money can double in as many as 72/5 , 14 years time.
In case of NSC, the rate has been retained at 6.8% for the quarter ending December, so for this 5-year lock in product, investment has the potential to double your money in 10.58 years.
The 15-year long term investment option highly vouched for its tax competitiveness currently offers the return of 7.1%, so this avenue shall take 72/7.1 = 10.14 years to double your money.
4. Senior Citizens Savings Scheme:
The retirement product with a return of 7.4% can double your investment in 72/7.4 in 9.72 years.
5. Sukanya Samriddhi Yojana:
This girl investment product launched as part of the Beti Padao Beti Bachao initiative currently offers the highest interest rate of 7.6% among all small savings scheme and thus can double your money in 9.4 years.
The pension scheme's G scheme has been giving a handsome double digit return of 11.5% in the last one year, so this can double your wealth in 72/11.5 in 6.26 years.
7. Mutual funds:
Short duration, debt schemes with medium to long term duration have been currently offering any way between 8.5-8.7 percent return and hence these can double your money in 72/8.7 in 8.2 years.
Here the assurance on similar return that they have delivered over the last one-year or year-to-date of almost 40% cannot be guaranteed or will definitely not come by. This asset class works or gives whopping returns in times of geo-political and economic risk and so the similar scenario given the current landscape may or may not persist. And if we account for its year to date return of 40% till August, it will be the best off asset with a capacity to double your money in just 72/40 i.e. in 1.8 years.
So, it is just the potential of the instrument that we can estimate nothing in exactness can be said here.
Similar is the case for equities i.e. it may or may not replicate past returns and after the tumultuous March crash, Indian indices again saw a recovery by as much as 31% which is the best among top global indices during the just ended H1FY21 period. And though experts have been ruling out the sustenance of current levels on Indian indices for the next year, if it at all continues, considering the handsome gain it offered in a 6-months time frame, equities can double your money in over 2 years.
Though, for the last two asset classes the conclusion made is highly unrealistic as gold and even equity can fail to offer such returns for a continuing time frame
Here through the analysis above we can make the Bank FD will take the most time of some 14 years for your investment to double so it shall be best to top your investments with some other assets to earn good enough returns for optimal asset allocation as well as diversification.