Rule of 72

The Most exciting feature of financial market is doubling or tripling your money and the reason for many of us getting fooled in no time is because of this trap. We are very much excited when someone says double your money in no time, but here after say 

“Hey stop, you can’t or it won’t get doubled by the Rule of 72”

Rule of 72 s nothing but the time required to double your money based on the available interest rates. It was derived by Luca Pacioli (translated in English), “In wanting to know of any capital, at a given yearly percentage, in how many years it will double adding the interest to the capital, keep as a rule [the number] 72 in mind, which you will always divide by the interest, and what results, in that many years it will be doubled. Example: When the interest is 6 percent per year, I say that one divides 72 by 6; 12 results, and in 12 years the capital will be doubled.”

Going by the inflation rate in the past years we need effective financial instrument to beat it and give superior returns. Bank deposit rates and inflation rates were more or less same in the last five years, therefore the money invested in bank deposit will make you purchase the same product in the next year and it will not be sufficient for the other lifestyle expenses.

Another feature that can be determined is Money’s buying power in the future, Thus at 6% inflation using the rule of 70, it should take approximately 70/6 = 12 years for the value of a unit of currency to halve.

If your bank deposit returns and inflation rate are same, based on this rule your money will double in 12 years and the value of the same money will also be halved in the same time.  Thus we need effective investment avenues to enjoy superior returns, Mutual funds are the best schemes regulated by SEBI and AMFI. Enjoy the returns based on your risk taking ability. Returns will always beat bank deposit rates if you had consulted your proper financialadvisor before investing.

Double your money in a proper way and enjoy a happy, stress free financial life.

Rule of 72 Calculator:

<strong><a title=" Rule of 72 Calculator " href=" http://www.moneychimp.com/features/rule72.htm" target="_blank"> Rule of 72 Calculator </a></strong>