How to use an ROI calculator (Image: Shutterstock)

New Delhi : When your goal is to build a body of savings faster, you can’t depend on your monthly paychecks. You need to make investments that can increase your income.

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

This is where an ROI calculator comes in. We’ll walk you through everything, including what it is, how to use it, and the many benefits.

What is a return on investment calculator and what is it used for?

Before talking about the ROI calculator, it is important that we understand what ROI is.

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

That said, a return on investment calculator is an online tool that allows you to access the profitability of your investment. The tool can help you calculate the return of several investments and allow you to choose the one that offers maximum profitability. An ROI calculator. The ROI calculator displays the total gain on investment, absolute return on investment, annualized return on investment, and compound annual growth rate. You can also calculate returns on FD based on FD interest rates through the calculator.

How does a return on investment calculator work?

An ROI calculator uses an algorithm based on the ROI formula.

ROI formula:

ROI = (net profit / investment cost) x 100

Net Profit = Current Stock Value – Initial Stock Value

Returns can be calculated over different investment periods using the calculator.

The calculation is made according to the investment amount, the sum insured and the investment term of the plan. Using this information and the ROI formula, the ROI Calculator calculates the total gain from an investment. You can also calculate the compound annual growth rate of a plan using an ROI calculator.

Benefits of Using an ROI Calculator

Even though the ROI can be calculated using the formula mentioned above, it is highly suggested to use a ROI Calculator to avail a number of benefits offered by the ROI Calculator on investment:

1. Easy to use:

A return on investment calculator is the most preferred choice among investors because it is user-friendly and easy to use. You only have to enter minimal details such as the amount invested, the returns and the duration of the investment.

2. Available for free:

You can use an ROI calculator without paying anything. Almost all ROI calculators available online are free. You can use the calculator to select the best investment plan. If you opt for another alternative, such as hiring a financial adviser to help you, they may charge you a hefty extra. In this regard, an ROI calculator can be a boon when it comes to saving money and delivering the results you’re looking for.

3. Facilitates easy comparison:

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

4. Zero Scope or Errors:

Manual calculation of ROI may be subject to errors and miscalculations. A return on investment calculator offers accurate and precise results, leaving no room for miscalculations.

How to use a return on investment calculator?

Now that you know the benefits of an ROI calculator, let’s talk about using it.

As there are a plethora of ROI calculators available online, they may work differently. However, here is how you can use most online calculators:

1. Get the number you would be required to enter:

The first step is to know the details that you will enter into the ROI calculator. You will need to enter information such as the amount you have invested, the duration of the investment and the returns you have obtained on the investment.

2. Calculate now:

When we said an ROI calculator is easy to use, we mean it. You just need to mention the details listed above, and the calculator will give you the results in a click. Most of the ROI calculators available online not only calculate the gains you make on an investment, but also the absolute return and the annualized return.

Parting Thoughts:

By now you should have understood how an ROI calculator works. As stated before, it is easy to use and can come to your rescue when it comes to assessing the profitability of an investment option.

However, you need to make sure that even if an investment option offers high returns, you still need to be careful and smart. Be sure to read the SEBI guidelines before investing.