Future Value Calculator
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Future Value Calculator
A key factor that guides one’s investments is the future value of the investment. But a key challenge most people face is this: How to evaluate the future value of one’s investments? This is an important question as it provides some clarity about one’s financial situation in the future, which in turn can help one to make more informed decisions. But calculating the future value of one’s investments may not be easy for many. This is where a future value calculator comes in handy.
A future value calculator requires three inputs: principal amount, rate of interest and time period. Key in these three variables and the calculator shows the future value in no time. For example, if one invests ₹1 lakh for five years at 10% rate of interest, then at the end of the fifth year, the investor will get an amount of ₹161,051, which includes a compound interest of ₹61,051.
Frequently Asked Questions
What is the formula to calculate future value?
The future value calculator uses the formula for compound interest to ascertain the future value of an investment. The formula is given as follows:
A = p*(1+i)n
where A = Amount (future value)
P = principal (initial investment amount)
i = the rate of interest per year
n = tenure in years
Why should I check the future value?
The future value of an investment tells the investor how much money they would get when their investment matures. For example, assume that you have kept aside some money and want to use it to buy a car worth ₹10 lakh three years from now. You should get an idea of how much your savings will grow at a given rate of interest at the end of three years. Checking the future value of your money using a future value calculator can help you make an informed decision.
You can also compare investments with the help of a future value calculator. If you have a fair idea of what kind of return you can get on a particular asset, then you can use the future value calculator to figure out its future value. For example, a lot of times asset owners keep getting offers for their assets. If they know the future value and if they can compare it with the price they can get now, then they can make a more informed decision.
Is future value given by a future value calculator accurate enough?
Future value calculator is perfectly reliable when it comes to the arithmetic part of the question. However, the future value is computed based on the inputs given. If the holding period or the rate of return assumed changes, then the future value also changes. If investors’ assumption about the rate of return is wrong, then the real world outcome of the future value will be different from what is estimated by the future value calculator.
The future value shown by a future value calculator does not take into account the impact of taxes. Many investments generate returns that are subsequently taxed. The future value mentioned by a future value calculator does not account for taxes payable.
Future value calculator also does not take into account the real value of investments in the future. Real value of an asset is derived by accounting for inflation. For example, if the rate of interest is at 5% and the rate of inflation is at 6%, then the real rate of return is arrived at by deducting the rate of inflation from the rate of interest. In the present situation, it is minus 1%. This means in real terms an investor is losing value after investing.
How to compute future value of SIP investments?
Many investors invest in mutual funds through the systematic investment plan (SIP) route. One needs to estimate the future value of these units, if one has a rough idea about the expected returns and the time frame. A future value calculator cannot be used for computing the future value of all SIP investments. One can use an SIP calculator instead. It helps you to figure out the
future value of all your SIP investments.
Can a future value calculator help take corrective actions?
Most financial plans provide recommendations to invest in various investment products. Each of these recommendations is backed by some estimate of return and tenure. This is done in light of the financial goals of an investor. However, many times, financial goals change. Also, it is observed that in some cases, the realised rate of return and expected rate of return do not match.
In such cases, one can estimate the future value of existing investments and figure out the gaps. Accordingly, corrective actions can be taken.
In the financial world, it is said that compounding interest is the eighth wonder of the world. One who understands it gains enormously from it, and one who does not understand it pays for it. Hence, it is important to keep investing at regular intervals and increase the future value of one’s investment. Only this approach will help create wealth in the long term.
This calculator is meant to be used for indicative purposes only. It is designed to assist you in determining the appropriate amount of prospective investments. This calculator alone is not sufficient and shouldn’t be used for the development or implementation of any investment strategy. Upstox does not take the responsibility/liability nor does it undertake the authenticity of the figures calculated therein. Upstox makes no warranty about the accuracy of the calculators/reckoners. The examples do not claim to represent the performance of any security or investments. In view of the individual nature of tax consequences, each investor is advised to consult his/her own professional tax advisor before making any investment decisions on the basis of the results provided through the use of this calculator.