Beginners Guide: 6 Simple Steps to Calculate ROI (Return on Investment)

Calculate ROI: Before making any investment, one should be aware of the estimated return on investment to choose the best option amongst the various available choices. Calculating return on investment means estimating the probability and amount of returns on investments one can get after the investment period. It is a simple method to calculate the efficiency of an investment. You can use an investment calculator to make your calculations easy and reach accurate results. The return on investment is usually calculated in percentage.

Dividing the end of period value by the initial cost, then multiplying it by 100, gives you the exact percentage of return on your investment value. Financial tools like ULIP can be a favourable choice if you are looking for high-return investment opportunities. But what is ULIP exactly?

In simple words, a ULIP, Unit Linked Insurance Plan, provides dual benefits of insurance coverage and earning returns on the market linked securities, which could be debt, equity, etc., for different goals. These goals can be retirement planning, education, or any other significant events in life. They are also eligible for income tax benefits under Section 80C.

If you’re new to making investments, there are some crucial things you should know before investing your money. Here is a simple procedure you can follow:

Create A Baseline

Before considering to invest, you should create a benchmark and evaluate the previous records, if available. If not, you should consider having a set benchmark in advance as a baseline. Otherwise, you can consider the returns from the previous cycle.

This is a necessary step to estimate returns for your future. Usually, the factors influencing the rate of return on investment are:

  • Ideal Asset Mix
  • Strategic and Operational Fundamentals
  • General Economy
  • Government and Political factors

Determine Duration of Investment

Determining the duration of an investment is necessary, as the returns on investment vary with the duration of the same. You can use an investment calculator to check the variation in the amount of returns.

Identify Investment Opportunities While Considering the Time Frame

Different investments have different time frames of return on investment. It is based on the cash balance and spending in a particular year. Before choosing any type of investment, you should spend considerable time researching and comparing the investment benefits with different instruments.

Calculate the Amount Using Investment Calculators

After gathering sufficient information, it is necessary to calculate the investment amount for regular intervals. This can be done using an online investment calculator, which require you to enter the necessary personal information.

Such investment calculators are available across various insurer’s websites. There are other associated charges, which you should consider as they can affect the investment amount. This can help you calculate and get a fair estimate.

Compare Plans

After making the necessary calculations, it can help to compare plans considering various factors across different agencies and companies. Since interest rates are usually a priority for investors, you can make that one of the parameters and choose the plan that suits your needs and investment goals.

By reviewing all the necessary information, including the terms and conditions of all the insurance companies available online, you can be satisfied with your decision in the long run.

Calculate ROI
Calculate ROI

Calculate ROI and Choose One

Lastly, it is essential to calculate the realistic and accurate return on investment which you may earn. As mentioned previously, it is calculated as a percentage following a simple calculation. The one with a higher rate of return on investment is usually preferable, considering other important factors. 

While calculating ROI, it is advisable to calculate the real rate of return, keeping in mind the impact of inflation as it indicates the purchasing power of the sum over time.  After estimating the returns, it is preferable to compare different investment plans before you finally choose one.

Also, while comparing, it is better to take into account the annual ROI instead of cumulative ROI, i.e., the return you will receive at the end of your investment tenure.

Relevance and Importance of ROI for Investors

Return on investment plays a significant role in the management of an investor’s portfolio, as it measures the profitability of a particular investment. An ROI can increase if an investor is smart and active and chooses the appropriate company for assistance.

Going for credible companies like Max Life Insurance can enable you to put together a strong financial plan.  You can explore the plans that align with your investment goals. One can consider investing in ULIPs if their financial goal is to have substantial returns over the investment period and benefit from tax benefits as well.

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