Return on Investment or ROI is a performance metric used to determine the efficiency or profitability of an investment or compare the profitability of different investment plans. It helps you measure the return amount on an investment relative to its cost. The ROI is usually represented as a percentage.
It can be calculated using the formula: Net Profit/Cost of Investment * 100, where
Net Profit = Current Value of Investment – Cost of Investment
The return in investment calculator is a computer simulation that helps you measure the profitability of an investment. You can use it to estimate ROI over different periods. You only require two numbers to calculate your ROI using the return on investment calculator. They are the current value and the investment cost. But there are different inputs with each, and this is where it gets complicated.
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Let us look at key things to keep in mind while calculating the ROI using the return on investment calculator: –
- Establish a Baseline
The first step towards calculating ROI is establishing a baseline by setting a benchmark. Let us look at three examples for reference. In the first scenario, the company is only starting and therefore, there is no baseline. In the second scenario, the investment plan offers to improve in only one aspect. The baseline, in this case, is the return in the previous cycle. And the third scenario is where the investment needs a restructuring that may affect different areas.
- Determine If ROI is Revenue or Profit
You must know whether your return on investment is profit or revenue, as this distinction is fundamental. Sometimes this differentiation is hard to understand and control, which may become a problem later. Therefore, you should be clear on how you will calculate your return on investment.
- Time Period
It refers to the amount of time the investment will take to generate returns. It is vital to know the time period for the investment plan to estimate your return on investment. The time frame for ROI of most plans is between 1-2 years.
- Inputs for ROI
ROI is essentially a projection or estimation of what will happen at the end of the time period. The return on investment calculator generally asks for invested amount, returned amount, and the time frame as inputs. However, the inputs may differ with different investment plans. But you can rely on it to make a reasonable return on investment.
- Identify the Investments
Identifying the investments that would offer you maximum returns is essential. You can consider investing in Unit Linked Insurance Plans or ULIP. The premium amount for ULIP can be estimated using a ULIP calculator. Given your financial objectives, choose a plan that serves the purpose of your investment after thorough research.
- Estimate your ROI
An online return on investment calculator can be used to estimate your ROI quite accurately. There can be different investment calculators, depending on the type of investment. For example, a ULIP calculator can be used to estimate your premium amount for the ULIP plans. The ROI calculator helps you gauge the performance of the investment plan.
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- Key Success Metric
The return on investment calculator helps you determine the possible result of the investment. Key performance metric refers to the various quantifiable measures that the ROI calculator provides to judge the efficiency of the return on investment. Make sure to keep in mind these metrics before making an investment.
- Align With Financial Goals
Ensure that the return on investment aligns with your financial goals. By using the return in investment calculator, you can assess the ROI or profits for all types of investment plans. Do your research carefully before investing.
Return on investment depends on factors such as your risk tolerance and the amount of time needed for the investment to generate a return. Risk-averse investors are likely to accept lower ROI. And the investment with a high payoff tends to generate higher ROI. By using a return on investment calculator, you can get the absolute return annual returns across different holding periods. It can help you choose the right investment that aligns with your financial goals.
There are many different investment options available in the market today. And picking the one that best suits you can be confusing. Putting your funds in insurance plans is a great way to secure your family’s financial future and obtain a sustainable return on investment. You can consider investing in plans offered by a trusted brand like Max Life Insurance. Their ULIP plan is a safe investment option, and you can use the ULIP calculator to estimate its return on investment. Their investment plans have low risks and offer extensive benefits.