Investing at the right time gives you the leverage to plan your future finances accordingly. Amidst a myriad of investment options, one of the safe bets can be a fixed deposit. In order to plan better, you may want to get an idea of the returns you will be earning once your investment matures.
As fixed deposits are done for a specific tenure, it is easy to calculate the returns based on the principal amount invested and the ROI offered on it. An easy way to calculate the expected returns is by using the future value calculator. Let’s get into details about this tool.
What is the Future Value of an Investment
The value of an investment or current asset predicted on an anticipated rate of increase in tomorrow is the future value of an investment. Financial planners, businesspersons, and investors use the concept of future value.
This is to estimate whether today’s investment which they are making for a certain period of time is going to provide them with a better return in the future.
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How to Calculate the Future Value
There are various ways to calculate the future value of an investment/ current asset, However, below are a few of the most common ways. The first method is the basic traditional mathematical calculation:
1. Calculating future value using the
Simple interest formula
- Future Value (FV)= (P*R*T)+P
- FV= Future value of the investment
- P= Present value of the investment while investing
- R= The rate of interest yield on the investment
- N= N denotes the specific period for which the money is invested.
For example,
Mr A invested ₹100 for two years for 5% interest.
- FV= ₹100+(₹100*5%*2)
- FV=₹100+ (100*5/100*2)
- FV=₹100+10
- FV=110
Compound Interest formula
- FV= PV (1+r)t
- PV= Present value of the investment
- r= interest rate
- t= tenure of the investment.
For example
Mr A invested ₹100 for two years for a 5% compounding rate of interest.
- FV= PV (1+0.05)2
- FV= ₹100 (1+0.05)2
- FV=₹100 (1.1025)
- FV=₹110.25
2. new-age calculation through the Future value calculator
The second method is the simplest, trouble-free, new-age calculation through the Future value calculator. Calculating future value manually is a lengthy and time-consuming process. It requires lots of brainstorming, and sometimes it’s difficult to understand the formulas.
This is where the Future Value Calculator is handy. From small calculations to large ones, it helps you determine the most accurate values for your investment. You can do it online, in just a few easy steps. All you need to do is fill in the amount you are planning to invest, the number of years, and the expected rate of return, that’s it, the future value calculator will do the rest.
How can a Future Value Calculator Help Determine an Investment’s Future Value
A future value calculator helps you ascertain the future value of the present-day money which you plan to invest. This FV calculator is based on a compound interest formula and it requires three variables:
- Principal amount or present value of the money you are going to invest,
- Number of years you are planning to invest
- Expected rate of interest.
Click enter, and the calculator will give you the most accurate amount.
Benefits of Future Value Calculator
For an easy and quick calculation of the future value of your fixed deposit, you may choose a future value calculator. The various benefits it offers are-
Helps in Investment Strategies
The major objective of using a future value calculator is to ascertain the amount that will be generated in the future from the value of today’s investment. It considers inflation as well. In this way it helps you understand the loophole in the strategy and lets you be prepared or look for an alternate plan.
Precision in Calculation
The future value calculator provides a precise result. The accuracy of the calculation based on the details of the investment including the rate of interest, which helps the user assess their future financial goals. This gives the investor a window to make changes in their investment model if the expected future value does not meet their future financial requirements.
Quick Access
This digital tool for calculating the future value of your investment is quite easy to access and delivers results in no time. You just need to have an internet connection and your system or mobile and you are good to go. Anyone who wishes to check the returns can quickly access the tool.
Easy Steps
There are no complicated steps involved in using the future value calculator. You only need to enter the basic details of your investment and the tool quickly provides you with the result.
Conclusion
A future value calculator is an essential tool for your investment planning. It makes your life easier in terms of investing because of its accurate and precise values which can help you choose the most beneficial plans based on your investment target and risk appetite.