Almost 70% of Indian investors rely on their financial advisors, according to a 2018 study. The remaining seeks help from online investment calculators. New investors, for instance, often Google investment calculator before locking their funds. Such a tool can help them estimate a return on investment by providing the value of –
- Interest payout.
- Maturity amount.
Customers investing in fixed deposit schemes can make an informed financial decision by acquiring help from such calculators. They can help an individual plan their savings for future use in a more efficient manner without having to visit a branch and enquire about its returns.
Terms you need to know for investment calculations
Since fixed deposits offer assured returns to customers, the interest payout and maturity amount can be calculated beforehand for the amount of deposit made as per the pre-specified tenor. The amount so calculated is fixed, and interest is paid according to the type of FD one has chosen, cumulative or non-cumulative.
Further, an investor may Google investment calculator to determine the factors that affect such calculations as well. These aspects include –
- Deposit amount – It is the principal amount, which is invested for a fixed period. The interest is earned on this amount.
- Tenor of deposit – It is the period of investment and is usually represented in months.
- Term deposit interest rates – The interest rates applicable on an FD are fixed and do not have any impact on the term even if present market rates change. Bajaj Finance, for instance, offers up to 8.35% return on the amount invested in their Fixed Deposits.
- Type of account – The type of account (cumulative or non-cumulative) affects the maturity amount as it is inclusive of interest for the cumulative type of FD. For non-cumulative fixed deposits, the interest is paid to customers periodically, monthly, quarterly, half-yearly, or annually.
How to use investment calculator?
Respective financial companies provide customers with this beneficial tool. Simply Google investment calculator to find this useful tool and choose the type of fixed deposit followed by inputting values of the deposit amount, tenor of deposit, and applied rate of interest.
As a result, the value for interest payout and the maturity amount is provided to customers so that they can analyse expected returns and choose where to invest.
The use of a fixed deposit return calculator makes the task easier for investors as they do not have to reach out to multiple financial institutions to make enquiries; rather, they can calculate the value of returns from anywhere. Comparing the offerings from various NBFCs, thus, becomes easier, more convenient and faster.
Moreover, since users do not have to indulge in complex calculations, there are fewer chances of making errors in the calculation should they input correct values in the field.
What formulas do investment calculators use?
Fixed deposits use two specific kinds of a formula for the calculation of interest payout and maturity amount.
- Simple interest
It is useful when interest is calculated on the principal amount and not on interest.
A = P + [[P*r*t] / 100]
Interest payout = A – P
Where,
- A is a maturity amount.
- P is principal amount or deposit amount.
- r is rate of interest.
- t is tenor of deposit.
- Compound interest
Formula of compound interest is useful for the cumulative type of fixed deposit when interest is applied to the interest as well. The formula that investment calculator uses is shown below
A = [P * [(1+r/n) ^ (n*t)]]
Interest payout = A – P
Where,
- A is the maturity amount.
- P is the principal amount or deposit amount.
- r is the rate of interest.
- n is compounding frequency.
- t is tenor of deposit.
Determine the feasible rate of interest and tenor with FD calculators
There are several ways how FD tenor affects its interest rates which users can check by changing the tenor value during calculations. The highest term deposit interest rates are generally reserved for FDs with a longer term.
Since these investments are less risky because of eliminated market risks, by making use of the calculator one can get to know the value of assured returns. The returns are not subjected to change unless the customer opts for a premature withdrawal because of emergencies.
