The time value of money
A rupee today is worth more than a rupee next year. That single idea sits under every loan, deposit, investment and pension in the world.
Why today's rupee is worth more
If someone offers you ₹1,00,000 today or ₹1,00,000 in five years, take it today. You could put it in a fixed deposit and have about ₹1,38,000 in five years. That gap is the time value of money: money available now can earn a return, so it is worth more than the same amount later.
The same logic works backwards. ₹1,38,000 promised five years from now is worth only about ₹1,00,000 today, if you could earn 6.5% in the meantime. This is called discounting, and it is how every serious financial decision compares money across time.
- Today₹1,00,000
- In 5 years₹1,40,255
- In 10 years₹1,96,715
- In 20 years₹3,86,968
- In 30 years₹7,61,226
Rule of 72: at 7%, money doubles about every 10.3 years.
Future value and present value
Future value answers: what will this amount grow to? FV = PV × (1 + r)ⁿ, where r is the yearly return and n the number of years. Present value answers the reverse: what is a future amount worth today? PV = FV ÷ (1 + r)ⁿ.
You will meet these two formulas everywhere: in the price of a bond, the value of an insurance maturity, the corpus you need for retirement, and in whether an EMI scheme is really “zero-cost”.
The rule of 72
A handy shortcut: divide 72 by the annual return to get the years it takes money to double. At 6%, about 12 years. At 9%, about 8. At 12%, about 6.
It works for costs too. At 6% inflation, prices double roughly every 12 years. A monthly budget of ₹50,000 today becomes ₹1,00,000 in twelve years for the same life.
Key takeaways
- 1Money now beats the same money later, because it can earn in between.
- 2FV = PV × (1 + r)ⁿ; PV = FV ÷ (1 + r)ⁿ.
- 3Rule of 72: years to double ≈ 72 ÷ rate.
Try it with your own numbers
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Educational content, not investment advice. Figures are illustrative.