Here’s how many years it takes for your PPF, SSY, NSC investments to double
New Delhi: Despite small savings schemes’ interest rates being moderate, a lot of people still prefer to invest in these schemes as they offer guaranteed returns. Small savings schemes including PPF, Sukanya Samriddhi Yojana, Senior Citizens Savings Scheme, NSC, etc are some of the most common investment options for risk-averse investors.
From mutual PPF to SSY and NSC, there are several investment options available. So, how do you pick one? In order to pick the suitable option for you, you need to first decide your investment tenure and your financial goals. If you are still confused about which one to choose, you can look at the return differential to choose the one that offers the best returns in the least amount of time.
The best way to do this is to find out how much time it takes for each investment instrument to double your investment. Selecting a scheme would be easier once you know which scheme will double your investments faster. You can do this easily by using ‘Rule of 72’.
What is the Rule of 72?
The Rule of 72 in Finance is a simple way to determine how long an investment will take to double given a fixed annual rate of interest. By dividing 72 by the annual rate of return, investors can obtain a rough estimate of how many years it will take for their initial investment to duplicate itself.
How the Rule of 72 works?
The Rule of 72 states that Rs 100 invested at an annual fixed interest rate of 10% would take 7.2 years ((72/10) = 7.2) to grow to Rs 100. In reality, a 10% investment will take 7.3 years to double. It is a fairly accurate measurement, and more so when using lower interest rates. It is typically used for situations involving compound interest. Note that a simple interest rate does not work very well with the Rule of 72.
Here’s how many years it will it take for post office schemes to double your investment:
PPF: PPF interest rate is 7.1% p.a. at the moment. Assuming the PPF interest rate remains unchanged, it will take around 10 years for your money to double as 72/7.1 = 10.14.
SSY: Sukanya Samriddhi Yojana interest rate at the moment is 7.6%. Assuming the interest rate remains unchanged in the future, it will take around 9.4 years for your money to double as 72/7.6 = 9.47.
KVP: The current interest rate for KVP is 6.9% which is compounded annually. KVP promises to almost double your investment in ten years and four months. Applying the Rule of 72, it will take 10.43 years to double your money at the current interest rate of 6.9%.
NSC: National Savings Certificates interest currently is at 6.8%. Assuming the rate remains the same in the future as well, it will take 10.5 years for your investments to double.
5 years Time Deposit: Indian Post office is offering 6.7 per cent annual interest on time deposit, which is compounded annually. The scheme has maturity period of 5 years, which is not enough for doubling one’s money. By Rule of 72, one’s money in this scheme will get doubled in around 10.74 years, means by remaining invested in the scheme for another five years after maturity, one can come close doubling their income.