Are you seeking ways to increase your riches and make your future secure? If yes, then you are at the perfect destination. Because we have the perfect instruments that will aid you in calculating your finances, the tools are the CAGR calculator and the lumpsum calculator. In this blog post post, we are going to explain how these tools can help you to decide on your investments smartly. So, let’s dive in!
About Compound Annual Growth Rate (CAGR)
CAGR is the tool utilized to calculate the annual increasing rate on an investment and this is with the consideration of the cumulative effects. In simpler words, it is the compounded average growth rate on a monetary investment if the money has grown at a stable rate every year.
Why is CAGR Important?
- Reflects the true growth rate: Under CAGR, the compounding effects are considered, which are more effective than any other measuring technique, such as average annual gain.
- Helps in long-term planning: Using CAGR to analyze the annual growth rate over the period, can help in bringing clarity on the investment performance and level the investors know if they can expect better outcomes when making long-term investment decisions.
- Useful for comparing investments: CAGR allows us to calculate different investments, though they are dissimilar in terms of their periods of implementation or their initial values. Such a process assists in determining which investment yields the highest return.
- Indicates a steady growth rate: A high CAGR exponents return on investment at a logical and consistent route, which could be a sign of reliability and stability of your investment.
- Useful for predicting future growth: CAGR’s forecast of the investment can guide you in decision-making and make you aware of the possible investment options based on their historical results.
- Helps in setting realistic goals: With this type of calculation, the smooth progress of your investments and their average expected growth rate will be established.
How to Calculate CAGR?
The CAGR computation is straightforward. Three elements are required for this – the beginning investment value, the ending investment value, and the number of years. The formula has been demonstrated below.
CAGR = (Ending Value / Initial Value) ^ (1/n) – 1
Where,
- Ending Value: The current value of your investment
- Initial Value: The amount you initially invested
- n: Number of years the investment was held
Using an example can help you to understand this better. The expected return of Rs 1,50,000, considering the initial investment, will be:
CAGR= (1.5 / 1)^(1/5) – 1 = 0.1487 or ~ 14.87%
So, your final investment return is now 14.87%, with the average yield during the past couple of years.
What is a Lump Sum Calculator?
The work of the future value calculator, also widely referred to as the lumpsum calculator, is to find the value of your unique amount of the investment plan in the future based on a lump sum investment. Thus, the calculation of what to invest is effortless, as it displays the first investment amount, interest rate, and years needed to invest.
Advantages of Using a Lump Sum Calculator
The simplest and fastest way of calculating your portfolios is to use a mutual fund lumpsum calculator:
- An online lumpsum calculator is simple to use. Getting proper estimates on your investment plan does not require you to know the compound formula for calculating the total amount.
- It takes just a couple of seconds that show you your portfolio value. However, you should also remember that though the lumpsum amount calculator does not promise returns, the actual numbers suggested by it are just estimations.
- An effective indicator to know whether your chosen mutual fund investment would allow you to realize your financial goals is by using the lumpsum mutual fund calculator.
- You can identify your ideal mutual fund based on the value of investing in several funds through an online calculator.
How to Use a Lump Sum Calculator?
Calculating the investment value by using the lump sum calculator is extremely easy. You will need to provide three inputs – the principal amount( IOU), rate of interest( IR), and period the investment is held for( TP). The formula used by a lump sum calculator is as follows:
Future Value = Initial Investment x (1 + Interest Rate)^Number of Years
Now, let’s describe that in simple words. Suppose you invest in a fixed deposit of Rs. 5,00,000 for ten years with a retaining interest rate of 7.5%. Then, the value of your investment will be:
Future Value = 5,00,000 x (1 + 0.075)^10
= Rs. 11,52,244
Hence, now you will get a brief idea of your investment plan. And after ten years, you may get Rs.11,52,244 from your investment as predicted by the lump sum calculator.
Why is the Lump Sum Calculator Useful?
- Helps in long-term planning: With a lump sum calculator, you can calculate how much your investment amount is going to be worth over time and, thereby, help you strategize better options for long-term goals.
- Provides an estimate of returns: The compound interest calculator provides an estimate of the possible returns that investors achieve to make the right decisions.
- Useful for comparing investments: Similar to the CAGR, a lump sum calculator also enables the comparison between different investment options and the selection of the most profitable one.
- Assists in setting realistic goals: Through a specific future value of investment for you, you can set a real and achievable financial goal and aim for it step by step.
- Helps in risk assessment: The lump sum calculator, using the interest rate involved, can provide an approximate risk estimate of the investment.
The Bottom Line
CAGR and the lump sum calculator are great tools that can help investors in making their financial choices. Figuring CAGR (Compound Annual Growth Rate) will help to derive an average rate of investment growth and a lump sum calculator which serves in working out the worth of an investment based on a single investment amount. With its calculators, investors can be equipped with precision on how to budget and plan investment goals. Thus, it is prudent to use these tools while making investment decisions so that we might get a better understanding of the implications of the returns.