Whether you are making your first investment or have been in the market for a long time, you know how difficult it is to find an investment option that is just right for you. There are a lot of expert opinions that can help you make a choice, but few tell you exactly what you will gain or lose.
This is why a return on investment calculator has become every investor’s trusted ally. It helps you get an estimate of the profit you stand to make on your investment. Let’s look at how the calculator can help you zero in on your next decision and why you need to use one.
What is a return on investment (ROI)?
The return on your investment, also known as ROI, shows you how much money you’ve made. For instance, if you are thinking of investing in stocks, then an annual ROI of 7% is generally considered good. Knowing his helps you evaluate your investment opportunities.
Having a definite number helps you assess your investment options based on your financial objectives and the risk you are willing to take. It also helps you estimate the cost of investment and look at any hidden fees that may take away from your profits.
A simple formula can help you calculate the return on investment. It is usually expressed as a percentage. The formula for calculating the return on investment is ROI = Profit / Investment Cost multiplied by 100. The best part is that you have a reliable return on investment calculators that will do this math for you. Let’s look at how an ROI calculator is an essential tool in every investor’s arsenal.
What is an ROI calculator?
A return on investment calculator helps you estimate how profitable your investments are by giving you an idea of the return on your investments over time. It is simple to use and displays several vital metrics like the absolute return on investment, the annualized return on investment, and the compounded annual growth rate, or CAGR.
There are a few variations of the ROI calculator, depending on the investment like the ULIP calculators where you can see how much you profit. Typically, a return on investment calculator has a formula box where you may enter the initial investment, the amount returned, and the time for which the investment was made. Once you key in all the variables, you get the entire return on your investment.
How do ROI calculators work?
Before we get into the working of a return on investment calculator, we should know the difference between an annualized return on investment and an absolute return on investment.
The absolute return can be calculated by this formula: The value of the investment at the end – start value of the investment)/ start investment value. Convert this into a percentage amount by multiplying it by 100. For instance, if you started with INR 20,000 and now have INR 40,000, then your absolute return is 50%. This metric is usually used for investments that last less than a year.
Annualized return, on the other hand, gives you the return over different holding periods. The formula used to calculate is:
End Value – Initial Value/Initial Value * 100 * (1/holding period )
The first part of the equation works exactly like the absolute return, but you can annualize it by multiplying by 1/ holding period of the investment.
For instance, if you used a ULIP calculator, you would enter the end and start value and key in the number of years or months that you held the investment for to get the return on your investment.
What are the benefits of an ROI calculator?
A return on investment calculator gives you the much needed financial visibility that you need to make better decisions. By giving you a concrete number to estimate your return, you can pick out the best options from the market.
It also acts as your personal expert by helping you map out your expectations before you take in the advice of experts. This is not to say that the calculator gives you all the information you need but it does help you see the bottom line.
The best part is that it is a free resource and can be used by anyone. If you are a beginner in the world of investing, it can be a helpful tool to help you make your decision. With so many options and experts, information overload can be intimidating. Here is where a return on investment calculator makes things easier for both beginners and seasoned investors.
Bottomline
With so many investment choices out there, it can be confusing where to invest your hard-earned money. The Max Life Insurance calculator return on investment calculator is a handy tool that helps you select the most profitable investment. It is a simple and efficient tool that gives you the cost of your investment.