What is the Rule of 72, and How Does It Help Estimate the Time to Double Your Money?

This rule has been around for centuries and is still widely used by investors, financial advisors, and even students who are just beginning their journey in finance.

Understanding the Rule of 72

The Rule of 72 is a quick formula that helps you estimate the number of years it takes for an investment to double, given a fixed annual rate of return.

The formula is simple:

Years to Double = 72 ÷ Interest Rate

For example, if your investment grows at 12% per year, then:
72 ÷ 12 = 6 years
This means your money will approximately double in 6 years.

Why the Rule of 72 Works

The formula is based on the concept of compound interest, where your money earns interest on both the initial amount and the accumulated interest over time.

• At higher interest rates, money doubles faster.

• At lower interest rates, it takes longer to double.

It’s not perfectly accurate for very high or very low interest rates, but for rates between 6% and 12%, it’s surprisingly close to the actual result.

Examples of the Rule of 72 in Action

1. Bank FD (Fixed Deposit) at 6%
   72 ÷ 6 = 12 years
   👉 Your money doubles in about 12 years.

2. Equity Mutual Fund at 12%
   72 ÷ 12 = 6 years
   👉 Your money doubles in about 6 years.

3. High-Interest Credit Card Debt at 24%
   72 ÷ 24 = 3 years
   👉 Your debt doubles in just 3 years! (This is why high-interest loans are dangerous.)

The Rule of 72 in SIPs & Mutual Funds

If you invest through a Systematic Investment Plan (SIP) in mutual funds, the Rule of 72 can help you understand how quickly your money might grow.

• Suppose your SIP earns an average 10% annual return:
  72 ÷ 10 = 7.2 years
  So, your investment roughly doubles every 7 years.

This simple calculation helps investors set realistic expectations and stay motivated for long-term wealth creation.

Why Every Investor Should Know This Rule

• Quick Estimation: No need for calculators — just simple division.

• Better Decision-Making: Compare different investment options easily.

• Debt Awareness: Understand how fast loans or credit card balances can grow.

• Motivation to Invest Early: Shows the power of compounding in real numbers.

Thought on this:

The Rule of 72 is not a replacement for detailed financial planning, but it’s a powerful shortcut to understand the magic of compounding. Whether you are investing in fixed deposits, mutual funds, or stocks — this rule helps you visualize how long it will take to double your money.

So next time someone asks, “When will my money double?” — you know the answer lies in just a simple division by 72.