Whether you are a risk-averse investor or senior citizen, starting investment in risk-free investments are strongly preferred. Talking about risk-free instruments, bank fixed deposits, small savings schemes, or debt mutual funds are the best to bet in order to generate handsome returns in both the short-term and long-term depending on your personal finance goal. But, while investing in an instrument or investment product, we consider the applicable interest rate or prevailing returns first and not in how much time we would make our money double.
Here, you might be thinking that calculating how much time it would take to double your money will be time taking or full of hassle. But to minimize this, let me remind you about Formula 72 which you may have heard before. So if you have invested or are going to invest in bank fixed deposits or small savings schemes, let's now use the formula to know the exact time in which your invested money would double.
What is Rule 72?
To avoid any delay or hassle to calculate the period in which you would make your money double, Rule 72 is finance is going to be your best personal finance partner, let me clear you how. The rule simply estimates an investor how long it will take to double his or her deposit or investment. By adopting or using this rule, you can simply get a view of 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 prevailing rate of interest. Let's apply Rule 72 to a variety of investment vehicles to see how long it will take to double your money.
Bank Fixed Deposits
Fixed deposits are the secure investment strategy that offers persistent interest rates with no market risk. Fixed deposits come with a maturity period of 7 days to 10 years. And depending on the chosen tenure, the prevailing interest rates vary. Let's assume you wish to invest Rs 5 lakh in a bank fixed deposit with a 7.25 per cent interest rate, which is now the highest prevailing rate provided by Suryoday Small Finance Bank.
Divide 72 by the interest rate (7.25 per cent) to get the period it would take 9.93 years or 119 months for Rs 5 lakh to become Rs 10 lakh; 72/7.25 = 9.93 approx. This formula can also be used to determine how much interest rate you'll need to double your investment in a certain period. Let's say you want to double your money in five years, you'll need an interest rate of approximately 14%, 72 divided by 5 equals 14.4. This rule can be used by all types of investors, whether it is regular or senior citizens.
Senior Citizen Savings Scheme
The government recently announced that interest rates on small savings accounts would remain unchanged for the quarter ending September 30, 2021. Senior citizens savings scheme (SCSS) now offers an interest rate of 7.4 per cent (payable quarterly) among small savings schemes. This scheme is designed for senior citizens who wish to build a substantial retirement fund.
So, as I previously stated, senior citizens can utilise Rule 72 to determine the time period during which their deposit 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 have your money doubled, you need to keep the account open for the additional five years after it matures.
Public Provident Fund (PPF)
Among the debt instruments, PPF is one of the best and safest bets. Due to its higher interest rate of 7.1% and EEE (exempt-exempt-exempt) status, it is mostly considered for investing by long-term investors. Investors should be aware that PPF interest rates are declared on a quarterly basis and are exempted from tax. If one assumes a constant interest rate of 7.1 percent throughout the investment term, his or her money will be doubled in around 10.14 years, or 122 months; 72/7.1= 10.14.
Sukanya Samriddhi Account
When it comes to making investments for your girl child, Sukanya Samriddhi Yojana or SSY is considered as the best. Among the small savings schemes of India Post, it is the only scheme that provides the highest interest rate. For the quarter ending September 30, 2021, SSY will continue to fetch an interest rate of 7.6%. If the interest rate remains constant during the deposit term, an investor's deposit would be doubled in 9.47 years, or 113 months; 72/7.6 = 9.47.