Trap 1. ‘This Scheme Can Double Your Money’

In the movie Phir Hera Pheri, a con woman claims to have a scheme that can double one’s wealth in 21 days and she convinces Shyam and Babu Bhaiya, characters played by Suniel Shetty and Paresh Rawal, to go along with it. What happens afterwards is a mix of disappointment and laughter. In real life, though, the dose of laughter may be far less or completely absent in such situations.

When someone promises to double your money within a short period of time, it is almost always a scam. And if someone promises that over a very long tenure, that’s also just a turn of phrase to con you, because over a long period of time, doubling of money may not translate into the kind of returns you might be expecting.

Here is what you should consider instead. For a scheme to double your money with a reasonable rate of return, it has to be invested for a reasonable period of time. For instance, a scheme that can double the money in 21 days would give a return of 1,739 per cent in simple interest per annum. If a scheme  promises to double your money in 1-3 years, you are expecting it to grow 50-100 per cent annually.

“That kind of growth is extremely rare, involves very high risk, and is very difficult to predict or time,” says Adhil Shetty, CEO, BankBazaar.com, a fintech portal.

One such rare phenomenon happened earlier in 2023, when small-cap funds gave returns of over 50 per cent over 12 months. A return like that would double your money in about one-and-a-half years. But that was an exceptional case and nobody could have guaranteed it before the small-cap rally began.

Also, the potential to double your wealth is a very attractive one, but it is a long-term one. “Considering an upper-end rate of 8 per cent compounded annually (in a fixed deposit), money would roughly take nine years to double. If it were a mutual fund growing at 12 per cent, it would need a little over six years to double,” says Shetty. At the same time, a savings account that provides a rate of interest of 3.5 per cent will double your money in 20.57 years.

So what do you do to find out if the promise of doubling your money is genuine or not?

First, you can quickly assess it by applying the rule of 72, which gives you a quick estimate of how much time it will take for your money to double. Under this rule, you need to divide 72 by the rate of interest.

Second, check the bank fixed deposit rates to find out the prevailing rate of interest and the amount of time it will take for money to double. Anything more than that or a faster time to double your money would require higher returns and one of the ways to get that would mean investing that money in equities. With equities, returns can never be guaranteed.