Investment Gain

ROI

Annualized ROI

**What is the ROI?**

Return on Investment or ROI shows you the return from your investments. It helps you to choose the best investment across different investment options. You may evaluate the investment based on your financial goals and risk tolerance. You could also gauge the cost of your investment and look for hidden charges that could eat up your returns. The return on investment is usually expressed as a percentage. In simple terms, the return on investment is a financial ratio that helps you determine the benefit of your investment against the costs. You may calculate the return on investment using the formula: ROI = Net Profit / Cost of the investment * 100 If you are an investor, the ROI shows you the profitability of your investments. If you invest your money in mutual funds, the return on investment shows you the gain from your mutual fund schemes. ROI may be positive or negative. If the return on investment is negative, you are actually losing money on the investment. You must pick an investment that may offer you the maximum return over a period.

**What is an ROI Calculator?**

The ROI calculator is a simulation that helps you gauge the profitability of your investments. You may use the ROI calculator to determine the return from investments across various periods. The ROI Calculator consists of a formula box, where you enter the initial amount invested, the amount returned, and the investment period. The ROI Calculator shows you the total gain on investment. It also shows you the absolute return on investment, annualised return on investment, and the CAGR or the compounded annual growth rate.

## How does a return on investment ROI calculator work?

A return on investment calculator is a simple online tool that helps in estimating the return that one earns from an investment. One can also use it to calculate the return expected from an investment.

The calculator calculates the return from an investment in terms of value, and percentage using the following inputs.

- The amount that one invested
- The amount that has been returned
- The tenure of the investment

The calculator gives the following outputs for the above inputs:

- Total gain on an investment
- Return on investment
- Compound Annual Growth Rate (CAGR)

The return on investment is the absolute return, whereas the CAGR is the annualized return. Absolute return is the return from an investment over a specific period. One can calculate it using the following formula:

**Absolute return = (Ending value of the investment – Investment cost)/ Investment cost**

Annualized return is the return the investment has earned each year over a given period of time. It is the geometric average of the return of the investment. One can calculate it using the following formula:

**Annualized return = (Final value of investment / Cost of investment) ^ (1/n)) – 1**

Where, n is the number of years.

**How to use the CashZeni ROI Calculators?**

The CashZeni ROI Calculator shows you the return on your investments. To use the CashZeni ROI Calculator:

- You must enter the amount you have invested.
- Enter the amount returned.
- You then enter the holding period of the investment.
- The CashZeni ROI Calculator shows you the gain on your investment. It also shows you the absolute return on your investment and the annualised return on the investment.

## How to use a return on investment ROI calculator

The ROI calculator is a user friendly tool, and all one has to do is enter the following inputs.

**Amount of money invested**: It is the amount that one has invested or intends to invest.**Amount of money returned**: It is the amount that one has earned or expects to earn from an investment.**Investment period**: It is the number of years that one has held or wants to hold the investment. The tenure is in the number of years.

Upon entering the above inputs, the calculator will return the following outputs.

**Total gain from investment**: It is the return that one earns from the investment. It is expressed in terms of INR.**Return from investment (ROI)**: It is the absolute return from the investment. It is expressed in terms of percentage.**Compound Annual Growth Rate (CAGR)**: It is the annualized return from the investment. It is expressed in terms of percentage.

Let’s take an example of Mr Madhav. He invested INR 50,000 and got back INR 1,25,000 in 5 years.

- Amount invested: INR 50,000
- Amount returned: INR 1,25,000
- Investment period: 5 years.

Following are the outputs of the calculator:

- Total gain from investment: INR 75,000
- Return on Investment (ROI): 150%
- Compound Annual Growth Rate (CAGR): 20.11%

## Benefits of using a return on investment ROI calculator

**Returns**: The ROI calculator computes the absolute return as well as the annualized rate of return on investment. One can compute the ROI for varying holding periods.**Financial Decisions**: The ROI calculator helps in making the right investment decisions on the basis of the financial goals.**Selection of asset**: The calculator helps in shortlisting the right asset for investment. For example, one can use it for comparing investments over different holding periods and invest in the best one.**Compare the results**: One can use the calculator to compare the returns from an asset with its benchmark. Also, one can measure the gains from an investment against its cost.**Online**: The ROI calculator is available online and is free to use. Therefore, individuals can use the calculator multiple times to check different outcomes for an investment. This will help them make an informed decision.

## Types of returns on investment

Investors invest with a motive to earn returns. Returns can either be in the form of capital appreciation or regular income in the form of dividends or interest or both. Returns are also categorized based on the way they are calculated. Following are the different types of returns based on calculation:

#### Absolute return

Absolute returns are the point to point return from an investment. It measures the final increase or decrease in the value of an investment and doesn’t consider the time taken for the change in returns.

One can calculate it using the formula below:

**Absolute return = (Ending value – Initial value) / Beginning value**

Let’s understand this better with an example. Ms Aishwarya invested INR 25,000 and has earned INR 50,000 in 4 years. Aishwarya can calculate the absolute return using the formula

Absolute return = (50000-25000)/25000

Absolute return = 100%

This means Ms Aishwarya has earned a 100% return on her investment in the span of 4 years. In other words, her investment doubled in 4 years.

#### Annualized return

The annualized rate of return is the return an investment has earned each year over a period of time. It measures the average growth of investment each year during the tenure of the investment.

One can calculate it using the following formula:

**Annualized returns on investment = Final value of investment / Cost of investment) ^ (1/n)) – 1**

In the above example, one can calculate the annualized return as shown below:

Annualized returns on investment = ((50000/25000) ^ (1/4)) – 1

Annualized return = 18.92%.

This means Ms Aishwarya has earned 18.92% return each year for a tenure of 4 years. In other words, on average, her investment grew by 18.92% every year.

#### Total return

The total return is the actual rate of return from an investment. It includes dividends, interest, and capital gains from an investment over a period of time. It is expressed in terms of percentage. Also, it is a true determinant of an investment’s growth over time.