How to Double Your Investment
Achieving the doubling of your investment doesn’t involve any overnight get-rich-quick schemes; such scenarios are only plausible in dreams. However, there exists a simple formula that provides an estimate of the time required for your money to double – the Rule of 72.
The Rule of 72 Formula:
Estimated time period to double money = 72 / rate of return
For instance, consider wanting to calculate the duration for Rs. 10,000 to grow into Rs. 20,000 with an instrument offering an 8% interest rate. Applying the Rule of 72:
72 / 8 = 9 years
If the investment yields a 24% return:
72 / 24 = 3 years, indicating that it would take only 3 years to double your investment.
It’s essential to be cautious if someone promises to double your money in an unrealistically short period, like 2 years, as this implies a staggering 36% returns, likely indicative of a scam.
Here is a compilation of the 26 best investment plans in India for 2024.
Best Investment Options for a Salaried Person in India
- Public Provident Fund (PPF)
Investing in a Public Provident Fund (PPF) account not only contributes to your regular pension savings but also offers significant tax benefits. The amount invested in a PPF account qualifies for a deduction under section 80C of the Income Tax Act.
Additionally, both the principal and accumulated interest enjoy tax exemption at the time of withdrawal.
What We Like
– Offers a higher interest rate compared to bank fixed deposits.
– Returns are entirely tax-free.
– Approximate annual return = 7.1%.
– Time taken to double the investment = 10.14 years.
Concerns
– The PPF account cannot be closed before 15 years.
– Partial withdrawal is possible only after completing 6 years.
- National Pension System (NPS)
The National Pension System (NPS) is a portable pension scheme that remains consistent across various jobs and locations, allowing you to retain the same fund even when changing employment or cities.
An additional advantage is the exposure to returns from both equity and debt investments, distinguishing it from PPF, where investments are solely in interest-earning instruments.
All contributions made up to Rs. 1.5 lakhs into Tier I capital are exempted under section 80C. Additionally, any extra self-contribution up to Rs. 50,000 qualifies for tax benefits under section 80CCD(1B), enabling a total tax saving of Rs. 2 lakhs.
What We Like
– Approximate return per year = 8% to 10%.
– Time taken to double the investment = 7.2 to 9 years.
Concerns
– Full withdrawal is not permitted before the age of 60.
– Only 25% early withdrawal is allowed for specific purposes such as purchasing a house, medical treatment, and children’s marriage or higher education.
– Subsequently, only 60% can be withdrawn, which is tax-free, and the remaining 40% is retained to receive a regular pension.
- Equity Linked Savings Scheme (ELSS)
Investing in ELSS offers a higher return of 15% to 18%, with a relatively shorter lock-in period of 3 years. However, any earnings surpassing Rs. 1 lakh are subject to taxation.
What We Like
– Approximate return per year = 15% to 18%
– Time taken to double the investment = 4 to 4.8 years
Concerns
– Treated as LTCG, and earnings over Rs. 1 lakh are taxed at 10%.
- Tax Savings Fixed Deposit
For those seeking a secure investment option without concerns about market fluctuations, opting for a tax-saving fixed deposit from any bank or post office is a viable choice.
Interest rates vary between banks, typically ranging from 5% to 7.25%.
What We Like
– Approximate return per year = 5% to 7.25%
– Time taken to double the investment = 9.9 to 14.4 years
Concerns
– Interest earned from FD is taxable.
– There is a lock-in period of 5 years.
- Unit Linked Insurance Plans (ULIPs)
Investing in ULIPs provides a wealth creation option coupled with life cover. The premium paid for ULIPs is eligible for a deduction under section 80C, and returns on maturity are exempt under section 10(10D).
Returns vary based on the combination of equity, debt, or hybrid funds.
What We Like
– Returns are tax-exempted.
– Returns could be high if the stock market performs well.
Concerns
– Numerous fees and charges (2% to 4%) such as premium allocation charge, mortality charges, fund management charges, and policy administration charges.
– A high percentage of management charges (1.35% per annum).
- Stock Investment
Stock investments, although high-risk, have the potential for very high returns. Opt for equity investments if you are comfortable with the possibility of losing up to 50% of your capital.
In the last 1 year, the NSE has yielded a return of 12.56%, and over the last 2 years, it generated a return of 28.94%. Similarly, shares of blue-chip companies have delivered substantial returns recently.
What We Like
– Approximate return per year = 18%
– Time taken to double the investment = 4 years
Concerns
– High-risk factor.
– Requires a Demat account for equity investment.
- Mutual Funds
Mutual funds offer a convenient way to invest in the stock markets, especially for those lacking time and expertise.
Equity mutual funds have consistently generated higher returns, with funds like Canara Robeco Bluechip Equity, Axis Bluechip, and Kotak Bluechip Fund delivering 2-year returns in the range of 15% to 19%. Investments can be made as lump sums or through monthly SIPs starting at Rs. 500.
What We Like
– Approximate return per year = 16%
– Time taken to double the investment = 4.5 years
Concerns
– High-risk factor due to market fluctuations.
– Impacted by market movements in NSE/BSE.
– Fund houses charge an expense ratio (around 1.05%).
- Commercial Real Estate
Commercial real estate offers rental income and capital appreciation, driven by the demand for office space in a growing corporate environment. Returns depend on factors such as real estate location, building quality, market space rent, and demand-supply dynamics.
What We Like
– Approximate return per year = 12%
– Time taken to double the investment = 6 years
Concerns
– Selling real estate takes time.
– Returns differ based on property location and other factors.
- Initial Public Offer (IPO)
Investing in IPOs is advantageous as the money is blocked for only 7 to 15 days. Prudent investment in a good company launching an IPO can yield returns as high as 20-25% over time.
What We Like
– Approximate return per year = 20%
– Time taken to double the investment = 3.6 years
Concerns
– Very high risk.
– Subject to market movements.
- Fixed Deposit
Fixed Deposits (FDs) stand out as the safest and most secure investment options, offered by both banks and post offices, providing higher interest rates than regular savings accounts.
Bank vs. Post Office Fixed Deposits
Interest Rates
– Bank FD: 2.5% to 7.5%
– Post Office FD: 4% to 6.7%
Time to Double Investment
– Bank FD: 9.6 to 28 years
– Post Office FD: 10.74 to 18 years
Tenure
– Bank FD: 7 days to 10 years
– Post Office FD: 1 to 5 years
Min Deposit Amount
– Varies from bank to bank for FDs
– Post Office FD: Rs. 200
Tax Benefit
– Available on 5-year tax saver FDs for both banks and post offices.
- Liquid Mutual Fund
Liquid mutual funds are characterized by minimal risk and are suitable for individuals with surplus funds for short durations.
These funds invest in highly liquid short-term instruments such as bank CDs, T-bills, and commercial papers, all with a maturity period of less than 91 days.
What We Like
– Approx return per year: 4%-5%
– Years taken to double the investment: 14.4 to 18 years
Concerns
– Lower returns compared to Fixed Deposits (FDs)
- Ultra Short Term Debt MF Plans
In contrast to liquid mutual funds, ultra short-term debt MF plans invest in bonds and other instruments with a maturity period exceeding 91 days but less than 1 year.
These funds carry some interest rate risk, are less liquid, and consequently, offer higher returns.
What We Like
– Approx return per year: 7%-8.5%
– Years taken to double the investment: 8.4 to 10.3 years
- Equity Linked Savings Scheme (ELSS)
Investing in ELSS offers numerous advantages, including tax savings, higher returns (15% to 18%), the option to invest monthly through SIP, and a low initial investment starting at Rs. 500.
What We Like
– Approx return per year: 15%-18%
– Years taken to double the investment: 4 to 4.8 years
Concerns
– Lock-in period of three years.
– Returns treated as Long-Term Capital Gains (LTCG), with gains over Rs. 1 lakh taxed at 10%.
- Fixed Deposit
Returns on 3-year FDs vary across banks, typically in the range of 5% to 6.5%. This investment option does not come with associated tax benefits.
What We Like
– Approx return per year: 5% to 6.5%
– Years taken to double the investment: 12 to 14.4 years
Concerns
– Returns vary; some banks offer lower returns for 3-year FDs.
- Recurring Deposit (RD)
The returns generated from an RD over a 3-year period are almost identical to those of a fixed deposit.
What We Like
– Approx return per year: 5% to 6.5%
– Years taken to double the investment: 12 to 14.4 years
- Direct Equity and Equity-Oriented Mutual Funds
Equity stands out as the top choice for individuals seeking growth and wealth accumulation. Individual stocks can yield high returns (>20%) for fundamentally strong and growing companies over an extended period. For instance, Eicher Motors achieved a 5-year CAGR of 28.77%.
However, the potential for substantial returns comes with high risk, where a poor investment choice can lead to more than a 50% erosion of capital. A prudent approach is to invest through mutual funds. Index funds, for example, can deliver returns in the range of 18-24%.
If you don’t have a demat account, you can choose one from the list of the best demat and trading accounts in India.
What We Like
– Approx return per year: 16 to 18%
– Years taken to double the investment: 4 to 4.5 years
Concerns
– High-risk, high-return investment.
- Gold
Over the years, gold investments have provided consistent returns of around 10%, surpassing inflation and offering diversification. An efficient way to invest in gold is through Gold mutual funds, Gold ETFs, and Gold bonds.
Another option is to invest in the Sovereign Gold Bond Scheme regulated by the government and RBI. In this scheme, you own gold in ‘certificate’ format, with the value of bonds assessed in multiples of the gold gram. The initial minimum investment is 1 gram of gold.
Investors earn 2.5% interest per annum on the amount invested, with a lock-in period of 8 years.
What We Like
– Approx return per year: 10%
– Years taken to double the investment: 7.2 years
Concerns
– No tax benefits.
- Real Estate – Residential
Investing in residential real estate offers a steady income through rental returns and appreciation, carrying a moderate level of risk compared to equity investments.
The surge in residential real estate investments is driven by the demand for improved urban housing and government housing initiatives. Investors benefit by owning a tangible asset, diversifying their investment portfolio, and potentially saving on taxes through housing loans and depreciation.
What We Like
– Approx return per year: 11%
– Years taken to double the investment: 6.5 years
Concerns
– Difficulty in selling property quickly in case of urgent financial needs.
– Returns depend on property, location, and nearby infrastructure developments.
– High political involvement; changes in government policy may impact property valuations significantly.
- National Savings Certificate (NSC)
NSC is a low-risk, fixed-income instrument easily obtainable at any post office, offering two fixed maturity periods of 5 and 10 years.
Investors can allocate any amount, with investments up to Rs. 1.5 Lac qualifying for tax deductions. The interest earned, however, is not tax-free, and NSCs can be pledged with banks for obtaining loans.
What We Like
– Approx return per year: 6.8%
– Years taken to double the investment: 10.58 years
Concerns
– Lower returns compared to mutual funds.
- Tax Saving FD
Tax-saving FDs provide complete capital protection with additional interest income for a 5-year tenure at rates similar to regular 5-year FDs. However, premature withdrawal is not allowed except in the case of death, and the interest earned is taxable.
What We Like
– Approx return per year: 5% to 7.25%
– Years taken to double the investment: 9.9 to 14.4 years
Concerns
– No premature withdrawal possible.
– Cannot be pledged for taking loans.
- Bonds
Long-term debt investments in bonds can yield steady returns over inflation, but they come with interest rate risk. Bonds are suitable for individuals seeking principal protection, a stable income, or tax savings. Investment options include AAA-rated bonds by PSU, government bonds, and Corporate NCDs.
What We Like
– Approx return per year: 7% to 9%
– Years taken to double the investment: 8 to 10.3 years
Concerns
– Interest rate risk.
– Interest earned is taxable.
Basic Considerations Before Making Investments
- Goals & Expected Returns
Understanding the purpose of your investment is crucial, whether it’s building a retirement corpus, funding your children’s education or marriage, purchasing a house, planning a vacation, or acquiring a luxury car. Clearly defined goals facilitate realistic planning and commitment to your investment strategy. When you are aware of your objectives, the process of selecting suitable investment options becomes more straightforward. This involves assessing the potential returns offered by each option and aligning them with your financial goals.
- Investment Period
Generating returns or profits requires time; there are no overnight successes in investing. It is essential to identify a suitable investment period during which your money can grow sufficiently to meet your desired financial objectives.
- Risk Factor
While having clear goals, it’s imperative not to rush into investments solely based on the potential for high returns in the shortest time. Your investment decisions should be guided by a consideration of risk factors and an understanding of your personal risk tolerance. These factors can vary significantly from person to person.
For instance, a newcomer in a well-paying job might be more willing to accept the risk of losing Rs. 25,000 in equity investments. On the other hand, the same amount could be crucial for an older individual, covering their monthly expenses, requiring a more conservative approach. Different professions, financial needs, and life stages contribute to varying risk appetites and exposures. Salaried individuals might prioritize different risks than business owners, emphasizing the need for personalized investment strategies.
