Ways in which investment calculators help investors
People invest money in different money market instruments to make profits. The growth of money has become more of a necessity these days as the cost of living is going up with each passing day. People also save money for important occasions such as marriage, education of children, buying a home, and even buying a car. Apart from money market instruments, people also invest money in assets such as real estate and gold. There is an investment calculator for every type of investment. These calculators can help the investor in sorting out good investments from bad ones.
What are money market instruments?
There are many types of money market instruments—bank term deposits, public provident fund, corporate bonds, government bonds, mutual funds, company shares, etc. All these instruments have different weaknesses, strengths, risks, and rates of return. While bank term deposits, public provident funds, and government bonds are secured investment options, their rates of return are paltry. Often the return from these highly secured investments ends up being eroded by inflation with the result being low or no growth of money. However, if you are not at all inclined to park your money in riskier instruments with a high yield, you need to calculate the return on an investment calculator. By using the investment calculator, you will get a brief idea of the return that you may get at the end of a fixed tenure.
No risk, no gain
If you are inclined to take some risk in lieu of better returns, then there is a plethora of options available, which include corporate bonds, company shares, mutual funds, etc. Investment in all these instruments entails an element of risk. However, there is still some difference in the degree of risk of these individual instruments.
It is apparent that investing in company shares is by far the riskiest option. However, it can also be the most rewarding one. Nevertheless, you need to have a good knowledge of company business, performance parameters, balance sheets, business environment of the country and the world, and other factors to invest your money in shares and get good returns.
Investing in mutual funds can be comparatively easier and less risky. You need to select some good mutual funds and park some money in each of them. You may reap good returns after 3 or 5 years. Corporate bonds are also risky, but if you buy bonds of famous corporate entities, the risk is mitigated to a large extent.
Whatever kind of investment you make, you need a certain degree of an idea about the final amount that you are going to get at the end of a fixed term or a tenure of your selection. This, at least, gives a solace that you are at last going to get a handsome amount of money after slogging it out for so many years. However, for that, you need a good investment calculator. A calculator comes with some tabs—starting the amount, the rate of return, period of investment (in terms of the number of years), and final amount. The tabs in starting amount and number of years may be known to you, but not the rate of return in each case. In corporate bonds, government bonds, public provident funds, and bank deposits, the rate of return is known. You can easily calculate the final amount with the help of an investment calculator. However, if it is an investment in stocks or mutual funds, then it is difficult to calculate the return. In case of mutual funds, you can at least go through the returns offered by similar funds with similar allocations to get an idea about the potential return. But the return on a share investment cannot be quantified until you sell shares and and know their prices during that time.
Variable interest rates
Even in public provident fund and some other safe bet investments, the rate of interest can fluctuate easily. So if you are calculating the final amount you need to put the interest rate for the number of years it was in force. As you get the final amount at the end of say 3 or 4 years, take this as your initial investment in the next calculation and enter the enhanced or reduced interest rate and calculate the amount. This way you have to go on calculating up to the final year when you want to withdraw the final amount. In this way, the investment calculator can give you a more or less accurate calculation of the sum that you will be getting after the tenure.
SIP investment in mutual funds
However, if you are investing in mutual funds through a Systematic Investment Plan, then you would need a different investment calculator. In Systematic Investment Plan, you go on investing a fixed or variable amount of money, every month, to one or more selected mutual funds till your goal is reached. In a SIP, you are investing every month. Moreover, the rate of return is not known. You can have some idea of the rate of return if you go through similar funds with similar asset allocations. You can say that the rate of return on your investment can at least be near those with very similar asset allocations.