Mutual fund sellers sometimes claim that an investment can double within a specified period. However, mutual funds do not guarantee returns, and their performance depends on the underlying investments. Past returns may help investors estimate how long wealth could take to grow, but they cannot predict future performance.
Investors can use simple financial formulas to estimate how long an investment may take to double, triple or quadruple, respectively, at a given annual rate of return.
Rule 72 estimates how many years it will take for your mutual fund investments to double, while Rule 114 helps you calculate how long they may take to triple.
In this rule, an investor takes the number 114 and then divides it by the investment product's rate of return to achieve this. In other words, in this rule you divide 114 by the rate of return to find out the number of years.
For example, if with a 6% return your investment amount will take 19 years to triple. Tripling your money might look like a long-term goal, but understanding this rule can help an investor set goals and make smart decisions.
Suppose an investor is investing Rs 1 lakh with an expected rate of return of 10% per annum, then
Rule 114 = 114/ rate of return
= 114/10
= 11.4 years
This indicates that the investment will take around 11.4 years to triple or become Rs 3 lakh.
The below mentioned helps you in determining how many years will it take to triple your investments with different rate of return
ET OnlineNow suppose if you want your investment to triple in 6 years, then:
Rate of return = 114/ time period
= 114/6
= 19%
This shows that in 6 years your investment will triple with a rate of return of 19%.
Also Read |Explained: Want to know how long your investment will take to double? Use Rule of 72
The below mentioned table helps you in determining what rate of return you will earn at different time periods
ET OnlineThis rule is considered ideal for investors of all experience. This rule offers a rough amount for tripling the investment.
Rule 114 provides a reasonable timeframe than anticipating an overnight double in the money. It is considered as an effective tool for investors who want to plan long-term wealth creation and want to take advantage of compounding.
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