Rule of 114: What does this investment rule mean for you?
Kolkata: At the heart of investments lies returns. Every one risks one’s money with an instrument that is supposed to bring one returns. Over the years investment analysts have come up with a few rules of investment which are expected to answer questions like “How long is my investment take to double?” and “How long is my investment going to treble?” The rate of growth in value is of primary concern to almost all investors.
This is the most-frequently repeated rule of returns. This rule helps one to determine that time an investment will take to double in value. The most significant point about this rule is that one does not need any device or software to calculate. Most will not even need a pen and paper. One can just calculate it on the head. Moreover, one can calculate it for both simple interest and compound interest scenarios.
Let’s have a close look at how the calculation is done. The applicable formula here is time for investment to double = 72 / Rate of return in percentage. Say the rate of interest offered by a fixed deposit is 6%. It will take 72/6 or 12 years to double in value. Now think of an equity mutual fund that provides 15% rate of return. In this case, the mutual fund scheme will take 72/15 = 4.8 years or a few days more than 57 months to double. Another point to note here is that is the returns in an instrument varies from year to year, one should consider the average return and divide with that number.
How long will my investment take to grow 300%? This is a question on the lips of many investors. To get an idea, one has to divide the number 114 by the rate of return. If the instrument in question delivers a fixed return — say a FD — the investor has to divide 114 by the rate of interest to get the time taken to treble the investment. If the instrument is a market-linked one, say a mutual fund scheme, one has to divide 114 with the average rate of return.
The formula: Time for investment to triple = 114/ Rate of return in percentage. If a mutual fund scheme delivers an average return of 15%, the time taken for the investment to grow three times in value is 7.6 years. The calculation is 114/ 14 = 7.6 years or a few days more than 91 months.
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