A Comprehensive Guide on Future Value Calculator
Future value refers to the value of a particular asset or investment at a specific date in future. To be precise, future value estimates the worth of invested money after a particular time and provides a return. Future value is an important concept that reflects the value of current savings/investments in future and helps individuals measure the present investment’s worth in future. Investors and financial planners can use the Future Value Calculator to measure the future value of investment precisely.
Read the following sections to learn about this calculator in detail!
What Is a Future Value Calculator ?
Future Value Calculator is an online tool that calculates the future value of an investment at any particular time in future.
A future value calculator features a formula box where individuals have to enter required details, and this calculator will show results.
As individuals have gained a clear idea about the Future Value Calculator, let’s learn the calculating process.
What Is the Formula to Calculate the Future Value of Money?
To calculate the future value of an investment, one has to consider a series of regular deposits at a specific rate of interest and number of years.
Here, one can use a standard formula of the same; read on.
A = PMT ((1+r/n)^nt – 1) / (r/n))
Note: This formula works on the basis of deposits made at the end of each month or year.
Let’s decode the variables present in this formula,
A = Future Value of the Investment
n = Number of compounds per period
t = Number of periods the money is invested
PMT = Payment amount for each period
There is another formula that works on the basis of deposits made at the beginning of each month or year.
A = PMT (((1 + r/n)^(nt) – 1) / (r/n)) * (1+r/n)
Now that individuals know the formula, let’s learn how it works in a calculator.
The Future Value Calculator functions with a set formula. Let’s understand this with an example,
Suppose Mr Roy deposits ₹ 10,000 per month (here, the deposit is made at the end of each month) at an interest rate of 8%, which compounds monthly. (Here, compounding occurs at 12 compounds per period). To calculate the worth of that investment after 10 years of time, Mr Roy has to enter these data in the calculator.
|
Variables |
Values |
|
PMT |
₹ 10,000 |
|
n |
12 (Number of compounds per period is 12 for monthly compounding) |
|
t |
10 years |
|
A [as per the formula, (10,000(((1+0.08/12)^(120) – 1) / (0.08/12)))] If the deposit is made at the end of each month |
₹ 18,29,460 |
|
A [as per the formula 10,000 (((1+0.08/12)^120 -1) / (0.08/12) * (1+0.08/12)] If the deposit is made at the beginning of each month |
₹ 18,17,345 |
This formula works at the back of this Future Value Calculator. To use this calculator, individuals have to enter certain details such as Initial Investment, Periodic investment, rate of interest, number of periods.
The calculator will display the future value of an investment, the present value of an investment, total periodic investment and total interest.
Along with providing these values mentioned above, this Future Value Calculator benefits individuals/investors in a number of ways. Read along!
What Are the Benefits of Using a Future Value Calculator?
Future Value Calculator offers several benefits to individuals/investors. These are as follows,
- Shows Quick Results: Being an online tool, this Future Value Calculator shows results quickly. Here, individuals can eliminate the need of calculating manually; hence they can save a lot of time.
- Helps to Decide the Deposit Amount: By using this calculator, investors can decide whether they must increase the investment amount. In addition, this Future Value Calculator helps investors decide whether they must increase the number of times of deposit the investment. The manual calculation cannot provide this kind of information. Even if individuals calculate these details, the process will be tiring.
- Helps to Choose Right Kind of Investment: Investors can choose the right investment option that guarantees a return above inflation for a long period of time.
- Helps in Setting a Financial Goal: As investors learn about the future worth of their present investment, they can set a financial goal (purchase a dream house, make retirement planning, invest for child’s higher education etc.) accordingly.
Apart from knowing the benefits of using a Future Value calculator, one must know the factors that affect this calculation.
What Factors Affect Future Value Calculations?
Future Value calculation primarily depends on two factors. These are as follows,
- Interest Rate: Interest rate refers to the rate of return an investor can expect to earn from an investment.
- Time Period: Time period refers to the total investment duration.
The details mentioned above helps investors use a Future Value Calculator easily, get estimations of their present day’s investment worth and set a financial goal accordingly.
