Investment growth calculator is a functionality that is useful for all. When we see investment in a broader perspective, everyone invests money with objective of capital growth. Whether its trader or investor, everyone wants growth of capital within a pre decided time horizon.
Investors have a wider time horizon, traders have a narrow time horizon. But the focus of both is on investment growth Investment growth calculator like we have here serves both (Investors & Traders). The calculator that has been develop here suits long term investment style more.
Does this calculator ensures capital growth in long term? No, but what it can do is far more rewarding for an individual. Its a tool using which one can base their investment decisions.
More people loose money in investment due to wrong investment decisions. This is how this investment growth calculator proves its utility. It also helps one to select an appropriate investment vehicle. How?
To understand how one can effectively use this investment growth calculator, lets take an example:
Suppose ones goal is to accumulate Rs 1.0 Crore in next 20 years. Presently he has only Rs.100,000 as spare money which he can invest for this purpose. Henceforth, he can also contribute fixed amounts of money each month to build the corpus.
With these as the boundary conditions, he can use the investment growth calculator to identify the following:
1) What additional monthly contribution is required to achieve the goal.
2) What rate of return is required to achieve the goal (which investment vehicle)
Investment Growth Calculator
|Initial Investment (INR)|
|Monthly Contribution INR)|
|Interest Rate (%)|
|Time (in years)|
|Appreciated Amount (Initial Investment) In INR|
|Appreciated Amount (Monthly Contribution) In INR|
|Total Amount (Initial + Monthly Contribution)In INR|
Build Corpus of Rs.1.0 Crore
Example 1: Suppose he decides to invest in a fixed deposit which will yield an average return of 7% in next 20 years. In this case to build a corpus of Rs.1.0 Crore in 20 years, he must monthly contribute (Recurring Deposit) Rs.18,400/month for next 20 years. Rs.100,000 that he has now should be locked in fixed deposit for next 20 years. (Use investment growth calculator to check values)
Example 2: Suppose he decides to invest in a balanced mutual fund which will yield an average return of 11% in next 20 years. In this case to build a corpus of Rs.1.0 Crore in 20 years, he must monthly contribute (SIP) Rs.10,600/month for next 20 years. Rs.100,000 that he has now should be used to buy a good balanced fund units. These units should be held for next 20 years. (Use investment growth calculator to check values)
|SL||Initial Contribution||Monthly Contribution||Interest Rate||Amount After 20 Years|
Example 3: Suppose he decides to invest in an index fund which will yield an average return of 12% in next 20 years. In this case to build a corpus of Rs.1.0 Crore in 20 years, he must monthly contribute (SIP) Rs.9,100/month for next 20 years. Rs.100,000 that he has now should be used to buy index fund units. These units should be held for next 20 years. (Use investment growth calculator to check values)
Example 4: Suppose he decides to invest in a large cap mutual fund which will yield an average return of 14% in next 20 years. In this case to build a corpus of Rs.1.0 Crore in 20 years, he must monthly contribute (SIP) Rs.6,600/month for next 20 years. Rs.100,000 that he has now should be used to buy large cap fund units. These units should be held for next 20 years. (Use investment growth calculator to check values)
Example 5: Suppose he decides to invest in a diversified equity mutual fund which will yield an average return of 16% in next 20 years. In this case to build a corpus of Rs.1.0 Crore in 20 years, he must monthly contribute (SIP) Rs.4,600/month for next 20 years. Rs.100,000 that he has now should be used to buy diversified equity fund units. These units should be held for next 20 years. (Use investment growth calculator to check values)
Investment options which gives highest returns are always better?
Some might think that why to invest in recurring deposit when diversified equity funds are promising nearly double returns?
This is one dilemma that investors face every time they are investing.
Selection of right investment option is most essential to ensure desired results (achieve the goal).
But how to decide which investment option is better?
This decision can be based on two factors: (1) Affordability & (2) Risk taking capability.
People who can afford more, need not take higher risks to achieve their financial goals. This is the reason why richest people concentrate more on income generating options instead of growth options.
They select income generating option NOT because it is better. Income options are LESS RISKY.
Though monthly contribution is maximum in less risky option (example 1 – 7% return), but the risk of loss is also minimum.
So who can afford this luxury? Of course the rich and elite class only.
People who are not rich may not be able to afford example 1 (7% return). They are forced to look for other options like example 5 (16% return). Their hands are tied due to their affordability factor.
A person who cannot invest more than 5K per month has no other option but to go with example 5.
Risk taking capability:
Who can take higher risks?
– People who are young can take more risks.
– People who have more spare cash can take more risks.
Who can take lower risks?
– People who are old can take less risk.
– People who has less spare cash can take lower risk.
When people are young their earning is also low (less spare cash). This way young people can take lower risks. But on flip side, young people has lot of time in hand. They can stay invested for very long term. This balances their risk taking capability. Large cap funds and balanced funds becomes useful for them.
When people are comparatively older, their earnings are higher (more spare cash). This way old people can take higher risks. But on flip side, old people has less time in hand. Their investment horizons are shorter. This balances their risk taking capability. This is where large cap funds and balanced funds comes into play even for aged people.
I personally use this investment growth calculator before committing to any investment. This calculator gives a great clarity about the following:
(1) What we want,
(2) When we want &
(3) How to achieve it.
What we want is answered by the last row of the calculator [Total Amount (Initial + Monthly Contribution)]. This is our goal. We want to build a corpus as big as this. In our example, the corpus that we wanted to build was Rs.1.0 Crore.
When we want is answered by the row [Time (in years)]. Setting of any financial goal has two main parameters, value and time. If we want Rs.1.0 Crore, we must also answer when we want it? The farther away is the goal from today, more easily we can achieve it. In our example the time horizon we had was 20 years.
How to achieve it is answered by the last 2 rows of the calculator:
– Appreciated Amount (Initial Investment)
– Appreciated Amount (Monthly Contribution)
These two rows highlight the fact that to achieve the goal, self-contribution must be split between Initial Investment & Monthly Contributions.
The calculator will further highlight that how much should be the Initial Investment & Monthly Contributions.
In our example 5 the initial investment was Rs.100,000 and monthly contribution was Rs.4,600/month.
What’s the most important question that this calculator will answer?
This calculator will indirectly suggest Which investment option is right for a goal.
Selecting a right investment option is essential for any investor.
In example 5 we noticed that when initial investment is Rs.100,000 and monthly contribution is Rs.4,600/month, rate of returns REQUIRED was 16% per annum.
Here one has to make a safe guess.
Which investment option can give annualized rate of return of 16% per annum?
Annualized return of 16% p.a. is very high. So the choice of investment option is very limited. The best alternative among all is diversified equity mutual fund.
But do not select any mutual fund. Select a mutual fund with high CRISIL or Value Research (VR) ratings.
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