If you are thinking to make an investment or had already invested money in any financial product then Return On Investment (ROI) Calculator is a very helpful tool to find out the returns that you would be getting from them.
You can use the below ROI calculator to assist in finding the returns on investment made in stocks, lumpsum amount in SIP, Fixed deposits, have made investment in any index such as Nifty50, various mutual fund schemes and many other financial instruments.
You just need to enter the initial invested amount, the money you got or suppose to get at the end of the investment and tenures in months.
Moneycontain Return On Investment calculator is a 2 in 1 calculator on one hand you can find the CAGR returns on the other hand you can also able to find the absolute return on the investment simultaneously when you enter the values in fields that too in months instead of years.
You will also be able to find the total gain or loss you have on the investments you made.
So go ahead and check how much return your investment has generated for you using moneycontain ROI calculator below:
Now that you have calculated the Compound Annual Growth Rate as well as absolute returns on the investment you have made, it is very important to know most of the aspects related to both type of returns.
Below I have discussed them in detail and you should read them to find not only the answers but to be more aware when you are investing your hard earned money.
What Is Compound Interest?
In layman terms compounding means the ability of money to grow when the gains of year 1 is reinvested for year 2 or more.
Compound interest is also termed as “Future Value (FV)” of the money. If you have to analyse, what would be the value of money that we have today sometime in the future, then we need to move the ‘money today’ through the future i.e. future value of that money.
One of the prominent scientist of this century, Nobel Prize winner in Physics Albert Einstein quoted once about same.
He said “Compound interest is the eighth wonder of the world. He who understands it, earns it, he who doesn’t, pays it.”
This classic statement may sound absurd to you at first, but it is vital for wealth building. Let us understand compounding through an example
For example: Your dad have thought about you education when you turn to college at age of 18, when you are were 3 years old he decide to invest Rs.100,000 lumpsum for 15 years in a index fund.
Assuming the fund has generated an average return of 15% every year which is very nominal, just to let you know Nifty next 50 (index) alone have given 17.2% return on average every year since its inception and there are many stocks who have given more than 25, 35% return every year.
Your 1 lakh would have turned to Rs.8,13,706 after you turning to 18.
You can use moneycontain compound interest calculator to know the future value of you investment.
Below is the formula to calculate the compound interest :
Compound Interest = (P(1+i)^n) – P
Where,
P = Principal amount
I = annual interest rate
N = number of compounding periods
So, in compounding the interest you earn gets added to the principal amount and get reinvested, I hope you now have better understanding about compounding.
Now, you may be thinking if I can know how much would i receive using the compound interest calculator or doing it manually than what is purpose of knowing CAGR ?
See, when you decide to invest your money prior doing so, if you have known the compounded annual growth rate of that fund or stock than it becomes easy for you to compare the best and go with the highest cagr funds.
Secondly, suppose you have invested some money in a mutual fund scheme, fixed deposit or a stock and after 15 months you wanted to check the return it has generated than ROI calculator can help you find the same moreover depending upon the return you can then decide to whether continue with your investment or to switch.
Let us first understand with an example about cagr and why it is important in detail below.
How CAGR Gets Calculated?
Compound Annual Growth Rate aka CAGR shows the average rate at which an investment grows year on year when you have reinvested the profits at the end of each year.
The CAGR would calculate the rate of return based on the beginning and ending balances over the investment period.
Cagr tells you the actual returns of an investment generated over a year keeping aside the volatility.
Suppose, you have invested in a stock let say RELIANCE Industries when it was trading at Rs.500 and you bought 1000 shares now this is the beginning investment value 500*1000 = Rs.500,000.
You kept this investment for let say 6 years 6 months, now every year the return generated by reliance can be positive as well as negative, you will not be able to find how reliance as an investment given you growth on average every year till now.
Now in order to find the same you just need to simply enter the starting value and the current value also known as the end value and investment period in above cagr calculator to find the average return the stock has created.
Assuming the current value of stock after 6 years 6 months (78 months) is Rs.1300 therefore the current value of your invested amount is 1000*1300= Rs.13 lakhs.
Let us use the above ROI calculator to know CAGR it has generated over 78 months
As, you can see the reliance as an individual stock have given you 15.84% cagr returns year on year, for the time being leave aside the absolute return we will discuss them as well in detail below.
This can tremendously help you choosing and building better portfolio while making any investment. However keep in mind cagr does not take count of the risk involved and the volatility of your investment.
In other words when you see the cagr of any fund for last 3, 5 7 years it shows you the steady growth rate over the duration and does not shows you the exact returns given by the fund every year, it may happen the returns generated by the fund you choose is negative for the first year & during second year it turn slightly positive so on and so forth.
What Is Absolute Return Rate?
Absolute return also known as point to point return is the simplest form of return to know how much gain or loss an investment has made irrespective of the tenure. The gain or loss is represented as a percentage of the total investment.
You can use absolute return formula to calculate the returns for any investment whether reals estate, gold, stocks, funds, etc.
Only thing is it does not count the value of time and compounding effect like in case of cagr, in other words absolute return does not care about the tenure of investment or whether the investment have been reinvested, it just tells you the gain/loss in absolute terms.
For example: Suppose you bought SBI at 200 and sold it 250. How much percentage return did you generate?
The answer is 25%, CAGR factors in the time component which we had ignored when we calculated the absolute return.
Another point to keep in mind is always use CAGR when you want to check returns over multiple years and use absolute return when your time frame is for a year or lesser in case of stocks, funds or any other financial instruments.
Whereas when you just need to find the percentage of increase or decrease and does not care about the duration or compounding effect absolute return can be helpful.
Difference between CAGR and Absolute Return:
The major difference between CAGR and absolute return is the latter does not account for duration or tenure of the investment as well as misses the compounding effect.
So when you have to compare whether your investments over a certain period has added a significant growth you should consider calculating the returns by using CAGR and not absolute.
Moreover, if your duration is equal or less than a year you can calculate the returns using the absolute return rather than using cagr.
For example suppose you did a short trade in market and bought ICICI Bank stock, let say you bought it at Rs.250 and within 10 days the stock moved to Rs.265, here the absolute return is 6% so using it for less than a year is workable.
Whereas if the same investment is made for let say 13 months and stock moved to Rs.265 than the absolute return will still show you the same return not taking count of the duration of the investment, on the other hand the cagr returns are 5.53% it means cagr helps in smoothen the returns while doing the calculation.
Another point is cagr lets you easily compare two investments held for different periods.
Which is better CAGR or Absolute return?
CAGR is always a better option to calculate the returns in comparison to absolute return, if you are looking to invest in mutual funds whether through lumpsum or fixed deposits CAGR is the best method which tells you how exactly the growth has happened to the investments over the years.
So, while investing for longer term you need to keep in mind along with the volume of return it is also important to understand the pace or speed at which your investment has grown every year.
However, if you are making investment by systematic investment plan aka SIP or Recurring deposit for every month than CAGR has limitation and it is always better to use another type of calculation known as Extended Internal Rate of Return, XIRR.
Conclusion:
I hope above things are very much needed to make you completely aware about the CAGR and other types of returns in market. I hope you have completely understood the concepts behind the returns offered by various schemes through different channels of operations.
Feel free to use ROI calculator which is really helpful while choosing the correct funds or when you make any investments in future.
In case you want to know how much you need to save every month to reach your financial goals check out Moneycontain Monthly SIP Calculator with inflation here.
Checkout the impact of inflation on your returns as well as your life using moneycontain inflation rate calculator and calculate your future expenses easily.
Incase you are looking for any Home loan or want to calculate the monthly EMI, than do check moneycontain free home loan EMI calculator.
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Note: Please do not take this as any recommendation, to trade or invest. This is just for reference, to make you understand more about the return on investment calculator and its importance, under no circumstances intended to be used or considered as financial or investment advice, a recommendation or an offer to sell, or a solicitation of any offer to buy any securities or other form of financial asset.
Please do your own research and make investment. Moneycontain will not be responsible for any of your losses at all. The point made is for educational purpose only. All investments are subject to risks, which should be considered prior to making any investments.
