Rule 72:

The rule of 72 is the most fundamental rule every investment entity applies to, be it an investor or fund house or fund manager. It is a simple and effective method of estimating the time the investments will take to double themselves. The rule can also be used to determine the rate of return it would take for the money to double itself.

The rule goes as follows: Time for investment to double 72 / %age Rate of Return.

For example, if a mutual fund investment gives an annual return of 14% then the number of years the money is going to take to double itself is (72/14) = 5.14 years.

Investor can use this rule to compare different investment avenues like fixed deposits, bank savings, mutual funds, real estate, etc.

Another use of the rule of 72 is to determine the time their money going to take in order to halve itself due to inflation. For example, if inflation hits at 8% then it will take the money (72/8) = 9 years in order to halve itself.

Note: The rule of 72 is a generalized rule of calculating and estimating the number of years. If you wish to look at a more accurate number there are other variations of the rule available as well. Instead of 72, try using 69.3 for calculating continuous compounding calculations.

Benefits of Rule 72:
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