By Irshad Mushtaq
Did you know that the rule of 72 is an important concept that can greatly impact our personal financial health? This rule is used to determine how many years it will take for an investment to double at a given interest rate. For example, if you invest in a fixed deposit with a 7% annual return, it will take approximately 10.28 years for your money to double. If the return is 10%, it will take 7.2 years; for 15%, it will take 4.8 years; and for 20%, it will take 3.6 years.
To put this into perspective, let’s consider an investment of 1 lakh rupees in 1994. If this money had been invested at a compounding return of 20% annually, it would have grown to an impressive 2.37 crore rupees in 30 years. This means that the money would have multiplied 230 times in just three decades. On the other hand, if the same 1 lakh rupees had been invested at a 7% return, it would only have grown to 7 lakhs over the same time period.
This example clearly illustrates the power of compounding and the significant impact that the rate of return can have on the growth of an investment. It also highlights the importance of seeking out investments that offer double-digit returns, as these are the ones that have the potential to provide substantial growth over time.
In India, however, there are no laws that can guarantee such high returns. Therefore, it is essential to focus on building a quality, diversified investment portfolio in order to maximize potential returns and minimize risk. By carefully considering the potential for growth and seeking out opportunities for higher returns, individuals can work towards improving their personal financial health and achieving their long-term financial goals.
In conclusion, the rule of 72 is a valuable tool for understanding the impact of different interest rates on investment growth. By seeking out investments that offer double-digit returns and building a diversified portfolio, individuals can work towards securing their financial future and achieving their desired level of wealth. It is important to keep in mind the power of compounding and the potential for substantial growth over time, and to make informed decisions that will support long-term financial health.
- The writer is entrepreneur partner, M I Securities,Sharekhan.Email:[email protected]
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