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It is very important for ordinary investors to understand the power of compounding. This helps people make informed decisions about their investments. Compounding adds the interest earned on your investment to the principal balance, allowing you to earn good returns in a short period of time. Rule 72 and 114 can also play an important role in your investment decisions. These rules will help you know in what time your money will double or triple.
Rules 72 and 114 can be very useful
Manish P. Hinger, CA, Founder of Fintoo says, “To create long-term wealth, you have to be patient and let the power of compounding work. These things often arise in the minds of investors that in what time their money will double or triple. There are many formulas to calculate this, but it’s not very easy. In such a situation, rule 72 and rule 114 can be very useful for investors, in these rules you can make calculations very easily.
Rule 72 works like this
CA Manish P Hinger says that you can easily calculate the time it takes your money to double using rule 72. You need to divide 72 by the amount of return you expect from your investment. For example, if you want to invest Rs 5 lakh in equity funds and expect a CAGR of 12% per year, you need to divide 72 by 12. That means your money will double in 6 years. Investors should note that this is an approximate time and will be very close to the actual period.
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Rule 114 works like this
CA Manish P Hinger says that rule 114 works the same as rule 72. The only difference in this rule is that it is used to find out what time it takes your money to triple. Again, in this rule, you need to divide 114 by the amount of return you expect from your investment. If you expect 12% CAGR per year, you need to divide 114 by 12. That means your money will triple in 9.5 years. This is a rough calculation of the period, which will be closer to the actual period.
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Disclaimer: The information provided here relates to stock performance only and does not constitute investment advice. Investing in the stock market involves risk and you should consult your adviser before investing.
