Now let us take last and the most important variable in the rule 72 formula. The “Interest Rate” or the return that can be generated from investments under different options: First, what are the options available in order of diminishing returns?
1. Direct investment in equity shares: One can expect returns in excess of 26% p.a. over a
period of >10 years in good company stocks.
2. Investment in selected mutual funds: Can expect returns of > 20% p.a. over a period of
2. Investment in selected mutual funds: Can expect returns of > 20% p.a. over a period of
>10 years in good funds.
3. Investment in a Company fixed deposits: Can expect returns of over 10-11% in good
3. Investment in a Company fixed deposits: Can expect returns of over 10-11% in good
companies for 1-3 years.
4. Investment in bank’s fixed deposits: Can give returns of 8-9% p.a for 3 years or more.
Our endeavor has been to look for an investment options which can be achieved over a period of 10 years or more with reasonable risk without losing our principal amount. We have, therefore, bench marked “Interest rate of at least 26% p.a.” We are, therefore, discussing in our writings only those options which are likely to generate compounded returns of 26% p.a. or more with reasonably high level of security and surety that our capital will not erode during the investment period.
4. Investment in bank’s fixed deposits: Can give returns of 8-9% p.a for 3 years or more.
Our endeavor has been to look for an investment options which can be achieved over a period of 10 years or more with reasonable risk without losing our principal amount. We have, therefore, bench marked “Interest rate of at least 26% p.a.” We are, therefore, discussing in our writings only those options which are likely to generate compounded returns of 26% p.a. or more with reasonably high level of security and surety that our capital will not erode during the investment period.
