What is annualized return and absolute return?

Annualized return measures the performance of an investment option in a year, while absolute return measures the performance from the day of the commencement of investment. Most Return on Investment calculators in India calculate absolute returns. However, absolute return doesn’t provide an accurate figure if the investment is held for more than a year. The annualized return helps you compare investment returns across different holding periods. Nevertheless, you can calculate annualized returns by dividing the figure by the number of years.

How can I get benefitted by using a Return on Investment calculator?

A Return on Investment calculator can make your work easier by calculating Return on Investment for you in a matter of steps. You just need to enter basic information such as amount invested, amount returned and investment tenure. A return on investment can help you evaluate the profitability of an investment scheme or investment to take sagacious investment decisions.

What are some factors that can affect the return on investment?

There are a lot of factors that can influence return on investment. One of the most significant factors is the rate of interest. Some investment plans have a highly fluctuating rate of interest that can affect the returns on investments. Other than that, factors such as a change in demand, government policies, costs are some factors that can affect the return on investment.

Is the Calculation of Return on Investment important?

Doesn’t matter if you are looking to expand your investment portfolio, or are a business, return on investment is a KPI (key performance indicator) used to measure the profitability of your investment or business. As a business, you can use it to modify your strategies; as an investor, you can use it to grow your investment by choosing the right investment plans for you.

Why should I use a return on investment calculator rather than a formula?

When the question is how to calculate return on investment, there are two ways. The first method is manual, which uses a formula, and the second method is a Return on Investment calculator. It is recommended that you use an ROI calculator as it is easy to use, has zero possibility of errors. However, most importantly, manual calculation of Return on Investment doesn’t take investment duration into consideration, although most Return on Investment calculators do.

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ROI Calculator

Investment can be made into equity, government bonds, and investment schemes. That said, it’s essential to determine where to invest. The decision can be made according to your financial goals, the return

^*Disclaimer The investment risks in the investment portfolio is borne by the policyholder..

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Disclaimer

: ¹The assumed rate of return (4% p.a. and 8% p.a.) shown in the illustrative example are not guaranteed and they are not the upper or lower limits of what you might get back as the value of your policy depends on a number of factors including future investment performance | The amount shown is for 30-year-old healthy male, 15 years premium payment term, 30 years policy term with Axis Max Life Online Saving Plan (Unit Linked Non Participating Individual Life Insurance Plan | Life Insurance is available in this product)

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What is Return on Investment?

As the name suggests, Return on Investment is the percentage of return an investment gives. Return on Investment can be used to evaluate the efficiency and performance of investments. Return on Investment can help investors decide which investment would be most profitable for them.

ROI Formula

Apart from using Return on Investment Calculator, return on Investment can also be calculated using the very simple ROI formula.

Return on Investment = (Net Return on Investment / Cost of Investment) x 100

How Does it Work?

Return on Investment is an important metric that is used to measure the performance of a particular investment scheme, equity fund, or bond.

Explaining this with an example:

Rahul wants to invest in one investment scheme. However, there are two investment options, option A and option B, which he needs to decide between. Both investments cost him INR 50,000 and INR 65,000 respectively (both investments have minimal risk). While option A gives a return of INR 70,000, option B gives a return of INR 80,000.

Then, the Net Profit would be:

Investment Option A – Return – Cost of Investment

70,000 – 50,000 = 20,000

Investment Option B – Return – Cost of Investment

80,000 – 65000 = 15000

Return on Investment (option A) = (20,000 / 50,000) x 100

= 40%

Return on Investment (option B) = (15,000/ 65,000) x 100

= 23.07%

An investment option with a higher ROI is, without a doubt, the winner here. Ergo, Rahul should invest in investment options A. However, investment duration is a concern here, when you calculate ROI manually, using a formula.

Apart from this formula, another answer as to how to calculate Return on Investment is an ROI calculator. A Return on Investment Calculator takes investment duration into consideration while computing Return on Investment.

What is ROI Calculator?

A Return on Investment calculator or ROI calculator is an online tool that measures the profitability of an investment scheme. It can help you decide if a particular investment gives you the returns that match your financial goals.

Benefits of Using a Return on Investment Calculator

If you are considering investing in a particular investment plan or looking to expand your investment portfolio, using a Return on Investment Calculator in India can be highly beneficial for you. Here are the many benefits of using a Return on Investment Calculator:

Helps you Choose the Right Investment Plan

From equity to debt, there are ‘n’ number of investment avenues available in the market. But how would you know where to invest? A Return on Investment Calculator can help you select the right investment plan that gives you the highest return as per your risk appetite. You can calculate the profitability of a variety of investment plans, compare them and select a suitable investment plan.

Helps you Plan your Financial Future

The financial future is all about savings. While the primary source of savings is income, the secondary source can be investments. Investments can help you meet your financial goals a lot faster. Ever so more, one investment can give you returns that can increase your corpus drastically.

However, for that to happen, it’s essential that you choose the investment plans that offer you high returns. A Return on Investment Calculator can come to the rescue by helping you calculate the return on investment. With this figure in hand, investors can make wise purchasing decisions. At the same time, they can calculate how much more they need to invest to meet their financial goals.

It’s Simple and Easy to Use

A Return on Investment Calculator is very easy to use. You just have to enter the details, and the Return on Investment is calculated by the ROI calculator.

How to Use an ROI Calculator?

You can find a variety of Return on Investment Calculators online. Even though some of them work differently, here’s how to calculate ROI through a standard Return on Investment Calculator

Step 1: Enter Personal Details

Most Return on Investment calculators require the user to enter their personal details before getting started. The personal details can include name, phone number, and age.

Step 2: Enter Amount Invested and Return

The second step is to enter the amount invested and the return received. The amount invested can be a one-time cost if the investment is in a lump sum. However, if you have invested regularly, then the total money you have invested in a year can be considered.

Another important piece of information to enter is the amount a particular investment gave you

Step 3: Add Investment Period

The investment period is one factor most investors undermine. However, a Return of Investment calculator takes it into account to indicate if an investment scheme or option is worth investing in. That said, the last piece of information you have to enter is the investment duration.

Based on this information, a Return on Investment Calculator calculates the return on investment.

Things to Know Before Using a Return on Investment Calculator

Now that you know how to calculate ROI, let’s dive into a few points you must know before you use a Return on Investment Calculator.

1. The Essence of Time

If you are calculating Return on Investment manually; that is to say through a formula, you are not taking into account the duration of the investment. In other words, an investment option that gives you a 50% rate on investment in 10 years is not better than another investment option, giving you a 30% return in 3 years.

Thankfully, most Return on Investment calculators in India now take into account investment tenure while calculating Return on Investment.

2. Risk Tolerance is an Important Factor

An investment scheme can generate a high return on investment. However, there are other factors such as risk appetite that are of equal significance. That is to say, not all investment options that yield higher returns are totally risk-free. They have moderate to higher risk, which can affect the returns from time to time.

Ergo, whenever you are using a Return on Investment calculator, take your risk appetite into account. Don’t invest in high-risk investment schemes if you have a lot on the line

3. Be Mindful of Miscalculations

Return on Investment can be used to measure returns for any type of investment. However, the only variation in investments that must be factored in is how costs and profits are accounted for. For instance, most investors, when they are using Return on Investment for stocks, don’t take into account dividend payouts and transaction costs. Transaction cost is the money you invested, while dividend payouts are what you gained from your investment. If this is not done, then the ROI would be misrepresented, or miscalculated.

Frequently Asked Questions

ARN:PCP/ROIC/050622

¹1The assumed rate of return (4% p.a. and 8% p.a.) shown in the illustrative example are not guaranteed and they are not the upper or lower limits of what you might get back as the value of your policy depends on a number of factors including future investment performance | The amount shown is for 30-year-old healthy male, 15 years premium payment term, 30 years policy term with Axis Max Life Online Saving Plan (Unit Linked Non Participating Individual Life Insurance Plan | Life Insurance is available in this product)

Sources:

www.investopedia.com/articles/basics/10/guide-to-calculating-roi.asp

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