Every time you put your money in any fixed deposit or mutual funds scheme, aren’t you curious what would the annual return be? Whenever you visit the bank to renew the FD or mutual funds programme, you are most surprised to see how much returns (less or more) you made on your principal amount deposited.
But is there no way to know how much you will make over the years before even keeping your money aside? Well, there surely is. You can find the amount you will make and the total interest you shall receive on your principal by using the specific calculators, for investments with constant returns as well as with variable returns.
What are these calculators?
1.Future Value Calculator is the value of an asset in which you invest is likely to change over time, considering the inflation (that erodes its value) and the returns gained on it (that adds to its value). This calculation is made easy by the FV calculator, which tells you how much you will make at the end of the maturity of your investment or savings. This helps you invest in higher-yield assets and saves you from spending money on low yield assets.
The formula for FV calculator is as follows –
The formula for a simple interest asset-
Future value = P + (P*r*t)
P = Principal value
R= Rate of interest
T= Number of years
The formula for a compounded asset –
Future value = P * (1+r)t
P = Principal value
R = Rate of interest
T = Duration equivalent to which you want to calculate future value (in years)
Limitation of future value calculator
• The FV calculator assumes that the return on the principal remains the same over time, and the rate of interest (rate of return) is considered constant. This is an ideal case, and in the actual world, your rate of interest can vary due to the type of investment.
2.Compound Annual Growth Rate Calculator
How do you know that the return you have received is at the right rate of interest? Usually, when we invest money through an agent, we only get to know the final amount we receive, but then what is the rate of growth on it?
The CAGR calculator helps you calculate the total growth received on your principal for a designated period. In case of equity or mutual fund investments, the returns (interest percentage) every year can vary; therefore, the CAGR helps you know the average growth rate of your money. But how do you calculate it?
Formula for CAGR:
CAGR (T0, Tn) = [ V(Tn) / V(T0)] 1/ (Tn-T0) – 1
V(T0) = Principal value
V(Tn) = Final value
Tn-T0 = Number of years
For example, CAGR for an investment amount of 10,000 yielding 25,000 at the end of five years, will be:
CAGR = (25,000 / 10,000) 1/5 – 1 = 0.2 (20 per cent)
There are barely any limitations to this; however, the accuracy cannot be guaranteed for volatile scenarios. You cannot wholly rely on them, but there is no loss in seeing that your annual growth helping you more about your investment, and saving you from making a loss-making investment.
Final word:
There is no point relying on your CA or investment advisor for such things, to know where and how the money gets utilised and what are the returns on it – calculators are convenient. And the ones available online are quite helpful (FV calculator or the CAGR calculator online).
