future value of your investment manually by using a formula, let us take the following example:
Assume an investor X has invested ₹ 2,00,000 in a mutual fund scheme for about 5 years. This shall provide an estimated rate of return of about 10 %.
This can be calculated by using the formula given below to obtain the future value of an investment:
We can obtain the future value = present value (1+r/100)^n, now the present value as mentioned is ₹2,00,000. Here, R i.e. estimated rate of return is equal to 10% =10/100 = 0.1.
Now, N implies the duration of the investment i.e. 5 years.
By using the required formula we can calculate the future value as,
- FV= 2,00,000 (1+10/100)^5
- FV = 2,00,000 (1.01)^5
- FV= 2,00,000 (1.295)
- FV= ₹2,59,000
Here, the future value of the investment can be accounted for as ₹ 2,59,000. With the initial investment of ₹2,00,000 in 5 years. However, this formula lacks the basis for taking the withdrawal amount into account. To calculate the withdrawal amount a more complex formula is given that is used for the purpose. i.e. FV = PMT [(1+r/n)^nt-1)/(r/n)]
As we can witness, using a manual formula shall be tricky and highly complicated as well as time-consuming, therefore to obtain quicker and more accurate results, it is always suggested to go for an online SWP calculator.