The Rule of 70: Definition, Formula, and How to Use It

Introduction 

When it comes to personal finance and investing, do you still believe that calculations are complicated and difficult to understand? However the fact is that just by following some simple rules, financial planning can be made much easier. One such powerful yet easy concept is the Rule of 70.The Rule of 70 helps you estimate in no time how long it will take for your money to double at a given rate of return. The best part is that here you don’t need a calculator, advanced maths, or financial software. With just a basic division, a fairly accurate answer is readily available.

For Indian investors, whether you are investing in fixed deposits (FDs), mutual funds, stocks, or even thinking about the impact of inflation, the Rule of 70 is a handy mental shortcut. In this blog, we will explain the Rule of 70 in simple English, along with examples that are relevant to Indian financial scenarios.

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The Rule of 70 – Definition

The Rule of 70 is a simple financial formula used to estimate the number of years required for an investment or value to double. Please note that the Rule of 70 is based on a fixed annual growth rate.

To keep it simple, it tells you:

• How long it will take for your money to become twice its present value
• How fast inflation can reduce the purchasing power of your money

The Rule of 70 works best when the growth rate is steady and falls within a reasonable range, usually between 4% and 10%.

Why the Rule of 70 is Important for Indian Investors

In India, most people invest in products like:

• Bank fixed deposits
• Public Provident Fund (PPF)
• Mutual funds
• Equity shares
• Real estate

At the same time, inflation plays a major role in reducing the value of savings over time. The Rule of 70 helps Indian investors quickly answer important questions like:

• “How long will my FD take to double?”
• “Is my investment beating inflation?”
• “How much time does it require to grow my wealth?”

Since it is simple and fast, the Rule of 70 is especially useful for beginners who want clarity without getting into complex calculations.

The Rule of 70 Formula – Explanation

The formula for the Rule of 70 is pretty straightforward:

Rule of 70 = 70 ÷ Annual Growth Rate (%)This result gives the approximate number of years it will take for your investment to double.

Understanding the Formula

• The number 70 is a constant
• The growth rate is expressed as a percentage
• The final answer is in years

This formula assumes compound growth, which means your returns also earn returns over time.

Using the Rule of 70 in Real Life

Using the Rule of 70 is very easy. All you have to do is to follow these steps:

1. Find the annual growth rate or interest rate
2. Divide 70 by that rate
3. The result shows the number of years required to double the value

You can apply this rule to:

• Investments
• Savings
• Inflation
• Business growth
• Population growth

It is not meant to be perfectly accurate but gives a quick and reasonable estimate.

Practical Examples of the Rule of 70

Example 1: Fixed Deposit

Suppose you invest in a bank FD that offers 7% annual interest.

Using the formula: 70 ÷ 7 = 10This means your money will double in approximately 10 years.

Example 2: Mutual Fund Investment

If a mutual fund gives an average annual return of 10%:70 ÷ 10 = 7Your investment will double in around 7 years.

Example 3: Inflation Impact

Assuming inflation is running at 5% per year:70 ÷ 5 = 14This shows that the purchasing power of your money will reduce by half in 14 years if your income or savings do not grow.

These examples show how useful the Rule of 70 is in day-to-day financial thinking.

Rule of 70 vs Rule of 72 vs Rule of 69

Heard about similar concepts like the Rule of 72 or Rule of 69?. Though all these rules serve the same purpose, they differ slightly in accuracy.

• Rule of 70 works well for moderate growth rates
• Rule of 72 is more popular and works better for rates between 6% and 10%
• Rule of 69 is more accurate for continuous compounding

For most Indian investors, the Rule of 70 is simple enough and provides a good balance between ease and accuracy.

Using the Rule of 70 for Investments

The Rule of 70 is very helpful when comparing investment options. For example:

• If one investment grows at 8% and another at 10%, you can quickly see which one doubles faster
• It helps set realistic expectations for long-term wealth creation
• It shows the power of higher returns over time

Even a small difference in returns can lead to a big difference in the time required to double your money.

Applying the Rule of 70 to Inflation

Inflation is a concept that is often ignored. However, the sad part is that it silently reduces your wealth. When you apply the Rule of 70 to inflation:

• You can estimate how quickly prices will double
• You understand why keeping money idle is risky
• You see the importance of investing in inflation-beating assets

For example, if inflation averages 6%: 70 ÷ 6 = 11.6This means prices may double in about 12 years and clearly shows why long-term planning is an imperative.

5 Top Benefits of the Rule of 70

Some key benefits of the Rule of 70 include:

• Very easy to understand and apply
• No calculator required
• Useful for quick comparisons
• Helps in better financial decision-making
• Ideal for beginners and experienced investors alike

It simplifies complex financial concepts into a single easy formula.

Limitations of the Rule of 70

While the Rule of 70 is useful, it has some limitations:

• It assumes a constant growth rate
• It is an approximation, not an exact calculation
• It may not work well for very high or very low interest rates
• It does take taxes or fees into consideration

Due to these reasons, it should be used as a quick guide and not as a substitute for detailed financial planning.

4 Common Mistakes to Avoid

When using the Rule of 70, make sure that you avoid these 4 common mistakes:

• Using it for short-term investments
• Ignoring inflation completely
• Assuming returns will always remain constant
• Forgetting the impact of taxes

Being aware of these limitations ensures you apply the rule prudently.

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Key Takeaways

• The Rule of 70 is a simple technique to estimate how long it takes for money to double
• It is of immense use for Indian investors dealing with FDs, mutual funds, and inflation
• The formula is simple : 70 divided by the annual growth rate
• It helps in making quick financial comparisons
• While not perfectly accurate, it provides valuable insights

If applied correctly, the Rule of 70 is no doubt a powerful tool in your personal finance journey.

Parting Words

Hope this blog clears the air on the Rule of 70 and how to use it. Before signing off, one last question. Are you yet to try your hand at mutual funds?

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