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Investment Simplified > Investment > Investment Calculator: How it works?
Investment

Investment Calculator: How it works?

Monika Mohan
Last updated: 2023/10/29 at 3:43 PM
Monika Mohan Published June 21, 2022 6 Min Read
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How Does an Investment Calculator Work?Variables Involved in an Investment CalculatorInvestment Calculator: TypesDifferent Types of InvestmentsInvestment Calculator: Pros & ConsInvestment Calculator: FAQs

Investment calculator is an online tool which calculates the return on your investment. Variables in an investment calculator are: principal amount, expected rate of return, type of return, investment horizon, additional contribution, etc.  It helps you finalise the amount of money you need to invest at a given rate of return and for how much time, to achieve your financial goals.

How Does an Investment Calculator Work?

An investment calculator is like any other calculator which is designed to ease the calculations and reduce the scope of errors.

Follow the given steps to use an online investment calculator:

  • Enter the amount you want to investment. It could be one-time investment or investment amount at particular time intervals like monthly, quarterly and yearly
  • Put in the rate of return you expect to get on your investment
  • Enter the time period you want to stay invested
  • Click on the investment button to know the results

Variables Involved in an Investment Calculator

The following variables are required to use any investment calculator online:

  • Principle Amount: This is the initial amount and is evident in the beginning of any investment. This can be a significant amount that one has saved to buy a home or received as inheritance.
  • Rate of Return: The rate of return of an investment calculator that holds utmost importance to investors. It helps investors gauge profitability and find the best investment option.
  • Expected Maturity Amount: This is the amount that you wish to receive at the end of your investment period. In case of a fixed-interest investment, like a fixed deposit, or in the case of market shares, you must have an expected maturity amount or final goal that you wish to achieve.
  • Investment Horizon or Time-Period: This is the time period for which you want to stay invested. Your investment horizon depends on your investment goals. If you are making an investment for a short-term goal, like buying a car, then the length of your investment will be short say, 2-3 years and vis-à-vis. You can use the short-term investment calculator as well as the long-term investment calculator according to your investment horizon or time-period.

Investment Calculator: Types

Since there are many investment options available in the market these days. Here, we are mentioning some of them:

1. Lump sum investment calculator: This tool helps you calculate return on one-time investments like, lump sum mutual fund schemes. You just need to fill the lump sum investment amount, expected rate of return and the time period of your investment.

It is also known as the one-time investment calculator.

2. Monthly investment calculator: This calculator helps you determine the amount that you should invest on a monthly basis to have a desirable fund in a pre-decided period.

You can use this calculator to know the estimated return and the total value of your investment, if you are parking your funds in a SIP scheme and a RD Scheme. It’s also known as an SIP Calculator.

3. Compound investment calculator: Power of compounding is a famous term in the investment world. When you receive a rate of return not only on your principle amount but also on the interest you have earned till now through that investment, it is called a compound return.

In the compounding method, your investment grows at a higher pace than an average investment method.

So, while calculating your investment, a compound investment calculator calculates the rate of return on an accumulated amount (principle amount and interest you will earn each year).

Different Types of Investments

The following are some of the common types of investment options in India:

  • Fixed Deposit: A Fixed Deposit is a low-risk investment that can be opened up at any bank to reap healthy returns. 
  • PPF: A Public Provident Fund is another productive option for investors. This offers tax benefits under Section 80c of the Income Tax Act
  • Debt mutual funds:  These funds have a lower risk quotient when compared to equity funds and are capable of providing stable returns. 
  • Equity funds: One of the most popular investment options in the market is equity funds. It allows investors to get ownership of a company with a guaranteed share in profits.
investment calculators

Investment Calculator: Pros & Cons

Benefits of using an Investment Calculator

  • An online calculator in India is useful in helping you analyze your financial goals (retirement, college for your kids, weddings, or buying a house)
  • They can also be useful in helping you figure out how much money you need to save each month for reaching a specific goal
  • An online investment calculator can help you quickly and easily determine which type of investments make sense for your situation

Investment Calculator lacks in:

  • While these calculators can be invaluable tools, they’re not foolproof or 100% accurate
  • They don’t consider your actual investment returns, which vary depending on several factors
  • Investment calculators do not factor-in fees you might pay when you invest (which could cut into your profits)

Investment Calculator: FAQs

How do I compute the effect of taxes on my investment returns? 

Compound Interest calculators and investment growth calculators like Equifax-LMI (investment Growth) calculators help us compute any tax effect on our investment returns as a part of their functionalities.

Does it matter if I make withdrawals from my investment account during the year? 

Yes and no. This will depend on your investment strategy and your individual financial situation.

What are important things to keep in mind when using this calculator? 

First and foremost, remember that past performance does not indicate future results. Secondly, don’t forget about taxes and commissions. And lastly, you should always consult a professional before making any significant decisions.

How many types of investment calculators are there?

There are four types of investment calculators in India: long term investment calculator, investment plan calculator, one-time investment calculator, and compound interest investment calculator.

How do I calculate return on investment?

The return on investment is calculated by minimizing the initial value invested from the final value. The resulting amount would then be divided by the cost of investment and finally multiplied by 100. 

How can I calculate my investment?

The investment calculator is one of the most accurate ways to ascertain your investment and get the hang of returns.

What is the safest investment with the highest return? 

Public Provident Fund (PPF), Capital Guarantee Plan, National Pension Scheme and Unit Linked Insurance Plan are some of the safest investment options offering high returns.

Also Read: Best Investment Options at Investment Simplified

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By Monika Mohan
Monika Mohan is a writing enthusiast who has luckily turned her passion into profession. For the greens, she has an established foot in the personal finance sector and likes to put forth complex topics in an easy-to-understand manner, minus the jargons. Outside the penny lane, it’s all about poetry, mountains and single-malts.
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