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May 2019
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INVESTMENT RULES

Good Morning ,

Wealth Creation is so simple if  direction & knowledge is right.

It becomes too much difficult in absence of proper knowledge.

There are few set of Rules & Formula , which  every investor need to know.

These rule and formulas will help to link your monetary requirement with your investment horizon.

1.Rule of 72:

It Gives an estimate of how long it will take to double your investment.

Time Taken to Double  your Amount= 72/Rate of Interest

FD– Investment-1,00,00 , Rate of Interest -7% , Time taken to double the amount (rs.2,00,000) – 10.28 years

  Rs. 2,00,000 =114/7 =10.28 years

LIQUID/DEBT FUNDS- Investment-rs.-1,00,000, Assumed ROI -9% ,Time taken to double the amount-8 Yrs

  Rs. 2,00,000=114/9= 8 years

2.Rule of 114  

It gives an estimate of how long it will take to triple  your investments . Again we will take 2 example in case of FD & Liquid Funds .

Time Taken to Triple your Amount= 114/Rate of Interest

FD– Investment-1,00,00 , Rate of Interest -7% , Time taken to triple the amount (rs.3,00,000) – 16.28 years

  Rs. 3,00,000 =114/7 =16.28 years

LIQUID/DEBT FUNDS- Investment-rs.-1,00,000, Assumed ROI -9% , Time taken to triple the amount-12.66 Yrs

  Rs. 3,00,000=114/9= 12.66 years

3. Rule of 144:

It gives an estimate of how long it will take to quadruple (4 times) your investments .

FD– Investment-1,00,00 , Rate of Interest -7% , Time taken to quadruple (4 times the amount (rs.3,00,000)-20.57

  Rs. 4,00,000 =144/7 =20.57 years

LIQUID/DEBT FUNDS- Investment-rs.-1,00,000, Assumed ROI -9% , Time taken to triple the amount-12.66 Yrs

  Rs. 4,00,000=144/9= 16 years

4. The Stanley and Danko Formula:

  A simple formula which tells you what your net worth should actually be or your ‘expected’ net worth.

This states that:

(Your age) x (Pre-tax annual household income from all sources, except inheritances) / 10 = Your “expected” net worth

Results will be in 3 categories-

1. Under accumulators of wealth (UAWs) are below with their expected net worth.

2. Average accumulators of wealth (AAW) are on par with their expected net worth.

3. Prodigious accumulators of wealth (PAWs) are above with their expected net worth.

Let’s take an example to understand:

Priya, 50, has a net worth of Rs.17.5 Lakhs and Sonia, 30, has a net worth of Rs. 1.3 lakhs.

Lets see what is there actual net worth according to formula.

Case -1

Priya earns Rs.150,000 a year and has investments that return Rs.15,000 for a total annual income of Rs. 165,000. Multiplied by 50 (her age) that’s Rs.8.25 Lakh . Divided by 10, her net worth should be Rs .825,000.

50*(150,000+15,000)/10

50*165,000/10=825,000

Priya is a Prodigious accumulators of wealth.

Case-2

Sonia is 30 years old, with a total annual realized income of  Rs.95,000. Multiplied by 30, that’s Rs.2.85 Lakh.     Divided by 10, her net worth should be Rs.285,000.Her worth is Rs.130,000.

30*95,000/10=285,000

 Sonia is a Under accumulators of wealth.

Reference: Business Insider

Its on you, that how you want to create the wealth and in what time you want to create wealth. FD is a traditional tool which become outdated. On other hand ,liquid funds are beating inflation rate with securities.

Happy Investing