How to Use a Return on Investment Calculator

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How to Use a Return on Investment Calculator (Image: Shutterstock)
How to Use a Return on Investment Calculator (Image: Shutterstock)

New Delhi : When your goal is to build a saving corpus faster, you cannot depend on your monthly paychecks. You have to make investments that can grow your income. 

As much as it is important to start investing early, it is important to invest in the right investment options. Your ultimate goal should be to earn high return that can help you reach your savings goal faster. 

This is where a Return-on-Investment Calculator comes in. We’ll be telling you all about it, including what it is, how to use it and the many benefits. 

What is a Return-on-Investment Calculator and What Does it Do? 

Before we talk about the Return-on-Investment Calculator, it’s important that we understand what Return on Investment is. 

Return on Investment is a metric used to estimate the returns you can make from an investment. The metric can help you select the best investment option. The return on investment is influenced by your risk appetite and financial goals. 

Having said that, a return-on-investment calculator is an online tool that helps you access the profitability of your investment. The tool can help you calculate your return from multiple investments and allow you to choose the one that offers maximum profitability. An ROI calculator. The ROI Calculator displays the total gain on investment, the absolute return on investment, annualized return on investment, and the compounded annual growth rate. You can also calculate returns on FD according to FD interest rates through the calculator. 

How Does a Return on Investment Calculator Work? 

A Return on Investment Calculator uses an algorithm built on the Return on Investment formula. 

ROI Formula: 

ROI = (Net Profit / Investment Cost) x 100

Net Profit = Current Value of Stock – Initial Value of Stock 

The returns can be calculated across different investment tenures through the calculator. 

 The computation is done as per the investment amount, the sum assured and the investment tenure of the plan. Using this information and the ROI formula, the return on investment calculator calculates the total gain from an investment. You can also calculate the Compounded Annual Growth Rate of a plan using a return on investment calculator.

Benefits of Using a Return on Investment Calculator

Even though Return on Investment can be calculated using the formula mentioned above, it’s highly suggested that you use a Return on Investment calculator to reap a number of benefits that ROI calculator offers: 

1. Easy to Use: 

A ROI calculator is the most preferred choice of investors as it is user-friendly and easy to use. You just have to enter minimal details such as amount invested, returns and investment tenure. 

2. Available for Free: 

You can use a Return on Investment Calculator without paying anything. Almost all the ROI calculators available online are free-to-use. You can use the calculator to select the best investment plan. If you go for any other alternative, such as getting a financial advisor to help you out, they might charge a hefty free. In this regard, an ROI calculator can be a godsend when it comes to saving money and giving the results you are looking for. 

3. Facilitates Easy Comparison: 

As a Return on Investment calculator helps estimate the returns on an investment, an investor can use the tool to compare multiple investment options to select the one that gives them the highest return. The tool can also be used to calculate the profits of investment against the market benchmark of several investment plans. 

4. Zero Scope or Errors: 

Manual calculation of ROI might be subject to errors and calculation mistakes. A Return on Investment calculator offers precise and accurate results, leaving no room for calculation errors. 

How to Use a Return on Investment Calculator? 

Now that you know the benefits of a Return on Investment calculator, let’s talk about how to use it.

As there are a plethora of Return on Investment calculators available online, they might work differently. However, this is how you can use most of the calculators online:

1. Get the Numeric you Would be Required to Enter: 

The first and foremost step is to know the details you are going to enter in to the Return on Investment Calculator. You would be required to enter information such as the amount you have invested, the investment duration, and the returns you got on the investment. 

2. Now Calculate:  

When we said a Return on Investment calculator is easy to use, we meant it. You just have to mention the details listed above, and the calculator would give you the results in a click. Most Return on Investment Calculators available online cannot only calculate the gains you make on an investment, but also absolute return and annualized return. 

Parting Thoughts: 

By now you must have understood how a Return on Investment calculator works. As established before, it’s easy to use and can come to your rescue when it comes to assessing the profitability of an investment option. 

However, you must ensure that even if an investment option is offering high returns, there’s always a need to be careful and smart. Make sure that you read the SEBI guidelines before investing.