# What Is Future Value Calculator?

### FUTURE VALUE CALCULATOR

Do you know that a future value calculator is different from a future value calculator annuity? An annuity is a regular flow as opposed to a one-time investment. Hence when there are regular flows where you must calculate the future value, you need to use the future value calculator annuity. This is a subset of the future value calculator.

We will first look at the concept of future value and why assets and investments have a future value? Then we will look at the applications of future value calculator India and how the future value calculator India can be used as a veritable tool of making scientific estimates of the future value of investments. But, first some basics.

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## WHAT IS FUTURE VALUE?

To constrict the explanation, the future value concept helps individuals to make a reasonable estimate of what their savings and investments would be worth at the end of a few years. A future value calculator online which is available on various websites helps to figure out if the value of their savings would be adequate to meet their liabilities arising after a few years. From an actional decision point of view, this future value calculator can help you determine the corrective action to be taken in the form of increasing your savings, extending your tenure or even taking on more risk to earn more returns.

A future value calculator India can be practically applied to all types of investments and this includes bonds, equities, debentures, gold bonds etc. The concept of future is absolutely central to investing, saving, financial planning and financial advisory. In short, financial services cannot survive in the absence of the proper application of future value. A future value calculator makes it easy to forecast revenues you can earn and grow to meet various liabilities over time.

### HOW TO USE FUTURE VALUE CALCULATOR?

Let us first understand how to use the concept of future value before getting down to the use of the future value calculator.

Here is the formula to calculate the future value

### Future value = P * (1+r)t

P = Initial value or the investment made

R = Rate of interest that is compounded annually

T = Duration in years for calculating future value

The above can be used for a basic lump sum future value calculator. This is normally, a very simple assumption. In reality, there are intermittent cash flows called annuities so you have to calculate the future value of such annuities. Normally, the future value calculator also imputes such annuities into the formula to give you the future value.

Future value calculator needs some basis inputs. That includes the initial investment, the annuity flows, the rate of increase in annuity flows, the rate of interest, the tenure, the frequency of compounding within a year etc. Once you input all this data, the future value calculator will give you the output as per your requirement.

### There are some practical limitations in a future value calculator

The future value calculator has limitations to its utility because the future is unpredictable. For example, the future value calculator typically assumes that rates of return remain constant over time. But, as interest rates in the economy changes, the value will also change. So, your output could be flawed, although this is more of an approximation than a precise answer.

The future value calculator is an extremely useful tool to estimate the future value of a lump sum and of annuities.

### How Does Future Value Calculators Work?

The future value calculator determines the future worth (FV) of an investment based on a consistent stream of deposits, a fixed interest rate (r), and a specific time frame (t). Here's how to calculate future value:

A = PMT * ((1 + r/n)^(nt) - 1) / (r/n)

Note that this formula assumes that the deposits are made at the conclusion of each time, whether it's monthly or annually.

Where:

A = Future Value of the Investment

PMT = Payment amount for each time period

n = Number of compounding occurrences per time period

t = Number of time periods the money is invested

Example

For instance, consider a scenario where you deposit Rs 10,000 at the end of each month with an 8% interest rate compounded monthly (equivalent to 12 compounding periods per year). You can determine the investment's value after ten years using the following calculations:

Using the future value formula calculator for deposits made at the end of each period:

PMT = Rs 10,000

n = 12 (representing the 12 compounding periods per year)

t = 10 years

A = 10,000 * (((1 + 0.08/12) ^ 120) - 1) / (0.08/12)

A = Rs 18,29,460.

However, if deposits were made at the beginning of each period, you would employ a modified mathematical formula:

A = PMT * (((1 + r/n) ^(nt) - 1) / (r/n)) * (1 + r/n)

Let's perform the calculation using the same parameters as before:

A = 10,000 * (((1 + 0.08/12) ^ 120 - 1) / (0.08/12)) * (1 + 0.08/12)

A = Rs 18,17,345.

The future value formula, in its most basic form, comprises the current value of an asset or investment, the interest rate, and the number of periods between the current and future dates. Calculating the future value can be approached in two ways:

#### 1. Simple Interest:

• Simple interest is applied when the annual interest is calculated on the fixed principal amount each year during the investment period.
• The future value formula for simple interest is: FV = (P * n * r) + P
• Here, P represents the initial investment value, n denotes the number of years, and r signifies the simple interest rate.

#### 2. Compound Interest

• Compound interest involves calculating interest on the previous closing balance each time, making it interest on interest.
• The future value formula for compound interest is: FV = PV * (1 + r/n)^(t*n)
• In this formula, PV represents the initial value, r is the interest rate, t stands for the investment tenure, and n denotes the frequency of compounding per year.

However, if you want to find the future value of a series of periodic payments, such as an annuity, you should use the following formula:

• FV = P * [((1 + r/n)^(n*t) - 1) / (r/n)]
• In this context, P stands for the periodic instalment, t represents the investment tenure, n is the compounding frequency, and r is the interest rate.

### Advantages Of Using IIFL's Future Value Calculator

• The IIFL Future Value Calculator provides a glimpse of the potential future sum that can be amassed by investing a specific amount at a designated time.
• You have the option to select an investment that yields returns exceeding the rate of inflation over an extended duration.
• This calculator aids in determining whether adjustments such as increasing the deposit amount or altering the frequency of deposits are necessary, and it also assists in pinpointing the investment choice that offers the most favourable return on investment.