Don’t we all love to double our money, like the cast in the Bollywood blockbuster ‘Hera Pheri' movie? But did we not learn our lesson from it? Aiming for quick returns is nothing but gambling. Sure, high risk gives high returns, but at the same time, you can lose your entire capital. Before wanting to double your money quickly, ask yourself, ‘Can I really afford to lose my entire capital?’
Making money (investing) is a long-term business. Hence, don’t run behind quick and easy money. Having said that, knowing how long it takes to double your money can be comforting and a motivator to start your investment journey.
Lumpsum Investments
When it comes to lumpsum investments, you can use the Rule of 72 to help you determine how many years it takes to double your investments at a given annual rate of return.
Rule of 72
No. of Years it takes to double money = 72 / Annual rate of return
Let's say you are expecting a 12% return from your investments and wish to know how many years it takes for you to double it.
No. of years = 72/12 = 6 years
This seems like a pretty straightforward way to determine tenure. This holds true only when your annual return remains constant. Thus, you can use this rule to understand how many years it takes to double your investments through a fixed deposit or other fixed income instruments.
When investing in the markets, the returns are unpredictable and are not the same throughout the investment tenure.
Systematic Investment Plans
Moving on to the most popular way of investing in the Indian markets – SIPs. SIP investing allows you to invest in a disciplined manner. SIPs and long-term investing are best friends. When done for a long tenure, SIPs help you average out the market volatility (rupee-cost averaging), and at the same time, you can benefit from the power of compounding.
1. Rupee-Cost Averaging
With SIPs, you will be investing a fixed amount every month. When the fund's NAV goes down, you'll accumulate a higher number of fund units, and when it is high, you'll accumulate a lesser number of units (comparatively). Thus, the overall cost per unit is often lower.
Let’s take an example. Mr. Vishal does a SIP of ₹5,000 per month for a year. On the other hand, Mr. Nikhil invests a lumpsum (₹60,000) in the same fund as Vishal in January.
2. Power of Compounding
The power of compounding is the basis for how mutual funds can generate exponential returns for investors in the long term. The capital gains (returns) generated from the funds are reinvested into the fund to create additional profits. Thus,
- Your Investment Corpus (so far),
- Gains (returns),
- New SIPs (every month)
All contribute towards generating higher returns.
Let's take an example where the monthly SIP of ₹5,000 is invested for varying tenures – 10, 15, 20, 25, and 30 years.
Assuming the return to be 12% across the investment tenures, the maturity value has increased significantly with time.
Thus, disciplined investing with a long-term investment tenure has the potential to generate high returns.
In 10 years, the investment almost doubled (approx. - 1.94 times).
Similarly, the investment grew by:
- 2.80 times in 15 years,
- 4.16 times in 20 years,
- 6.33 times in 25 years, and
- 9.81 times in 30 years
Thus, don’t just think about doubling your money. Let your investments make you more money. Aim to generate multi-fold returns over time. Don’t run after quick returns and schemes that can double your money in a month or so (short term) and end up risking your entire capital. To make money, you need patience. Be consistent with your investments and let the power of compounding and rupee cost averaging do its wonders.
Pick the right schemes and invest with a long-term perspective. In case you need assistance with your investments, reach out to us, and we are more than happy to guide you through every step.
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