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Future value is the utility of cash or an asset at a particular date in the future. It shows you the amount to which a current asset would grow over some time. The future value is a crucial concept as it shows you the value of your current savings in the future. You get an idea of how much an investment today is worth in the future.
The future value is important to both investors and financial planners, as they may estimate how much an investment today is worth in the future. It helps investors make sound financial decisions based on their financial goals.
Understanding the concept of future value helps you to earn a return above inflation. Inflation is the climb in the prices of goods and services over some time. Your investment must beat inflation over the long-term if you want to achieve crucial financial goals, such as buying a car or accumulating a corpus for children’s higher education and marriage.
Future value is significant for a business. If you invest money in a new project, it is essential to know the return on investment. Future value helps you to calculate the potential return from the project.
The future value calculator is a simulation that calculates the future value of an investment. It shows you what your money is worth in the future. A future value calculator is a smart tool that computes the value of any investment at a specific time in the future.
The future value calculator consists of a formula box, where you enter the initial investment, periodic investment, rate of interest, and the number of periods. The calculator will display the future value of your investment.
The future value calculator calculates the future value (FV) of an investment for a series of regular deposits, on a set rate of interest (r), and the number of years (t).
You must use the mathematical formula:
A = PMT ((1+r/n)^nt – 1) / (r/n))
(The formula assumes the deposits are made at the end of each period such as month or year).
A = Future Value of the Investment
PMT = Payment amount for each period
n = Number of compounds per period
t = Number of periods the money is invested
For example, you deposit Rs 10,000 per month (The deposit is made at the end of each month) at an interest rate of 8% compounded monthly. (This is 12 compounds per period). You may calculate the value of the investment after 10 years as follows:
PMT = Rs 10,000
n = 12 (Number of compounds per period is 12 for monthly compounding)
t = 10 years
A = (10,000(((1+0.08/12)^(120) – 1) / (0.08/12)))
A = Rs 18,29,460.
You have the mathematical formula if deposits are made at the beginning of each period:
A = PMT (((1 + r/n)^(nt) – 1) / (r/n)) * (1+r/n)
Let’s do the calculation with the same figures as above.
A = 10,000 (((1+0.08/12)^120 -1) / (0.08/12) * (1+0.08/12)
A = 18,17,345
The ClearTax Future Value Calculator shows you the future value of your investments in seconds. To use the ClearTax Future Value Calculator:
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