Future value is a value of an investment or asset on a specific date in the future. To put it another way, the future value is the amount of money a given investment will be worth after a certain period, assuming a specific rate of return (interest rate). Both investors and financial planners emphasize future value because it allows them to estimate how much an investment today will be worth in the future. It assists investors in making sound financial decisions based on their financial objectives. Thus, businesses and individuals must understand the future value of their assets. The most practical method for this is to use a future value calculator.
The future value calculator is a simulation that determines an investment's future value. It calculates how much your money will be worth in the future. A future value compound interest calculator is a helpful tool for calculating the value of any investment at a future date. The initial investment, periodic investment, interest rate, and period number are entered in the future value calculator's formula input box. The online future value calculator will show you how much your investment will be worth in the given future time.
The future value formula consists of the asset's (or investment's) present value, the interest rate, and the number of periods between the present and future dates in its most basic form. Calculating the future value can be done in two ways-
When the interest offered is simple:
Simple interest is when the annual interest is calculated on the fixed amount of principal each year during the tenure. The future value formula, in this case, will be-
FV= (P*n*r) + P
P stands for the present (initial) investment value, n represents the number of years, and r is the simple interest rate.
For example, assume that you invested Rs.50000 at a simple interest of 10% per annum for 5 years. Then, at the end of tenure, you will receive Rs.75000 [50000+ (50000*10%*5)].
When the interest offered is compound interest:
In compound interest, interest is calculated each time on the previous closing balance, so it is also known as interest on interest. The future value formula, in this case, will be-
FV= PV (1+r/n) t/n
In this, PV is the initial value, r is the interest rate, t stands for the investment tenure, and n is the frequency of compounding per year.
Suppose you invested Rs.50000 for 5 years at a compound interest of 10% per annum; interest is compounded annually. Here, at the end of tenure, you will get Rs.80525 [50000 (1+ 0.10/1)5/1].
The above formulae suit if you wish to calculate the future value for a lump sum investment. But what if you want to find the future value of an annuity? Suppose you invest Rs.10000 per month and want to know the final amount you get at the end of 10 years. For this, the future value formula is-
FV = P [(1+r/n) nt – 1) / (r/n)]
Here, P is the periodic instalment, t is the tenure of investment, n is the compounding frequency, and r is the interest rate.
When you try to calculate this manually, it can be confusing to choose between the appropriate formula. Moreover, the calculation process will also be complicated and time-consuming. This is why the future value calculator online is critical, which has automated the complete process of these complicated calculations.
Suppose you own a business or any appreciable assets. In that case, it's critical to know how valuable your assets will be at a given point in the future once you understand how useful they are now. You'll be able to plan more intelligently for the future this way. To avoid the problem of money's fluctuating value, it's critical to use a future value calculator online.
You can accurately determine the value of an investment made through SIP or lump sum investment mode
Calculate the expected future returns with precision.
If the expected results do not meet your expectations, take appropriate steps to achieve your financial goal. This may include increasing the deposit amount, increasing the frequency of investment, or investing in the asset class, giving enough returns to help you reach your goal in the given timeframe.
Compare and invest in funds that are appropriate for your budget and needs.
Choose an investment with a return that is higher than inflation.
The online future value calculator can also be used for the preparation of future value charts. By examining the time value of money, the tool assists you in making an informed investment decision. It will direct you to a matrix of FVs for different interest rates and tenures for a given amount of money. The chart provides an overview of the value of money.
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The future value of monthly investments can be calculated using the following formula-
FV = P [(1+r/n) nt – 1) / (r/n)]
In this formula, P stands for the periodic instalment, t represents the tenure of investment, n stands for the frequency of compounding, and r is the interest rate.
You can use a future value calculator for the future value of series of deposits. On Indian websites, you can find a wide range of future value calculators online. These calculators are easy to use, and their results depend on input from the user.
If you own a business or any appreciable assets, you should understand how to calculate future value. It's critical to know how valuable your assets will be at a given point in the future. This formula is beneficial for investors as well.
The two methods of calculating the future value which is based on the interest offered in the investment-
a) Simple interest:
If the investment gives a fixed simple interest, the future value formula will be
FV = P + (P*n*r)
In this, P is the principal (initial amount), n is the tenure, and r is the interest rate.
b) Compound interest:
If the investment calculates interest as compound interest compounded n times per year, the future value formula will be-
FV= PV (1+r/n) t/n
In this formula, PV is the initial value of the investment, r stands for interest rate, and t is the term of the investment.
There are some limitations to using a future value calculator. The future can't be predicted. The calculator is based on the assumption that rates of return are constant over time. We all know that in the real world, this is not true. Nonetheless, such calculators can provide us with some insight, which we can use to make immediate plans.
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