• Skip to main content
  • Skip to header right navigation
  • Skip to site footer
Site Logo

BasuNivesh

Personal Finance Blog

  • Home
  • Service
    • Fee-Only Financial Planning Service
    • Financial Wellness Session
  • Blog
  • Old Articles
  • About Us
  • Contact us
  • Media
  • Search

How to calculate returns on your investments?

December 25, 2011by Basavaraj Tonagatti

Today I will show you how to calculate returns from your investments and will make you familiar with few financial terminologies, which usually used in calculating returns.

1) Absolute Return: This is mainly used when the investment period is less than one year. To calculate this, simple formula is:-

Absolute Return= [Dividends (Receivables) ± (PE-PB)]/PE

Here PE-Price at the beginning of investments

PB-Price at the end of investments

2) CAGR-This is mainly used calculating your returns when holding period of your investment is more than one year and either you are investing lump sum or investing equal amount and frequency of investment too is equal (either Monthly, Qly, Hly or Yly). For example Rs.1,000 investment either one time, monthly, quarterly, half yearly or yearly. This is called Compounded Annual Growth Rate. This is the same compound interest calculation, which you and I did during our school days. We can calculate the same using Excel. I will show you how to do this.

  1. A) Open Microsoft Excel
  2. B) Go to Formulas
  3. C) Click on “fx” or Insert Function
  4. D) Popp Up will appear, in that select category “Financial”
  5. E) From drop down Menu select the option “Rate”
  6. F) “NPER” means Total number of Payments. It should be of same frequency means, suppose your payment is monthly for around 15 Yrs then it should be 180 not 15. Suppose your investment is quarterly for 15 years then it should be 60 (15*4).
  7. G) “PMT” means what you are going to pay for each period of investments
  8. H) “PV” means present value i.e. if you have any investments already, then you need to insert that value (current value) here.
  9. I) “FV” means Future Value of your investment which you can assume or you can calculate by inserting required rate
  10. J) “TYPE” means- is your payment will be at the beginning of the period or end. Suppose you are investing monthly and if your investment is on the beginning of the month then insert “1” and if it is at the end of the month then”0”

This is very important in calculating, because if you are investing in the beginning of each month interest calculation will start from the beginning only.

  1. K) “Guess” will give you the result from your investments.

With this function you can calculate any desired value by putting at least three values. Also remember that whatever going out of your pocket will be “-“value and whatever you will receive will be “+”. Remember that, your all values like Payment, Period and Interest should be in same frequency. Means if your contribution is monthly then period and interest should be in monthly.

3) IRR- It is used to calculate your returns when your contributions are not same but with equal intervals and you may be receiving lump sum in between. Suppose you are investing First month Rs.20,000 and next month Rs.25,000 and you are receiving Rs.2,00,000 in fourth month. For such type of transactions, you can use IRR function but period must be equal. It can be calculated again by selecting function and IRR. Remember to put outgoing as “-“and receivable as “+”. Here if the investment periods are beginning of the period then directly you can enter the amount. But your payment or receivable at the end of period then you need to enter into next year. Means if you are not investing at the beginning of the month then your first value should be “0” and second value must be your first month contribution. Logic is, it will consider the period from the beginning, suppose your investment is not in the beginning then you need to put “0” and need to put your value to next month.

4) XIRR-This is used when your payments or withdrawals and frequency are irregular. It is same as IRR but only difference is you need to key the dates of transactions. For Example-You are investing on 15th March 2011 Rs.30,000, on 24th April 2011 Rs.28,000, on 30th June 2011 Rs.45,000 and receiving Rs.1,30,000 on 25th Dec 2011.

I hope this will make you familiar with few of the Terminologies, which relates to returns and make you to calculate your returns.

Category: Investment PlanningTag: Absolute return, CAGR, Calculation of return on investment, IRR, XIRR

About Basavaraj Tonagatti

Basavaraj Tonagatti is the man behind this blog. He is SEBI Registered Investment Adviser who is practicing Fee-Only Financial Planning Process and also an Independent Certified Financial Planner (CFP), engaged in blogging since 7 years. BasuNivesh blog is ranked as one among India's Top 10 Personal Finance Blog. He is not associated with any Financial product/service provider. The purpose of this blog is to "Spread personal finance awareness and make them to take informed financial decisions." Please note that the views given in this Blog/Comments Section/Forum are clarifications meant for reference and guidance of the readers to explore further on the topics/queries raised and take informed decisions. These should not be construed as investment advice or legal opinion."

Previous Post: « Endowment Plans or Term Insurance with Mutual Funds?
Next Post: Agents, Advisers or CFPs? »

Reader Interactions

Comments

  1. Naresh

    May 23, 2013 at 12:30 PM

    hi can you help creating an xl sheet to calculate irr or xirr for a mutual fund investment where the investments vary every month for a period of 5 years

    Reply
    • Basavaraj Tonagatti

      May 23, 2013 at 1:05 PM

      Naresh-I refer you “Free personal Finance Calculators” where you will find lot of calculators than what you expected, that too at free of cost. Hope you enjoy 🙂

      Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Sidebar

Newsletter Signup

Subscribe to our weekly newsletter below and never miss the latest product or an exclusive offer.

Enter your email address

Categories

  • Banking
  • Consumer Rights
  • EPF and PPF
  • Insurance Planning
  • Investment Planning
  • Mutual Fund
  • Real Estate
  • Real Life Stories
  • Retirement
  • Tax Planning
  • Uncategorized

Subscribe to our YouTube Channel

Recent Posts

  • Interesting Tax Dispute – Whether Sachin Tendulkar Actor or Cricketer?
  • List of Index Funds in India 2021
  • 7.15% Power Finance Corporation NCD Bonds 2021 – Review
  • ENEMY No.1 of your investment
  • 39 Year Multimillionaire’s Tesla stock value is Rs.83 CRORE – What we can learn?
  • Best Investment Plans for 2021 in India

Are you looking for Unbiased, Simple and Conflict-Free Financial Planning Service?

We neither SELL any product nor representative of any Insurance or Mutual Fund Companies.

We offer you an unbiased Fee-Only Financial Planning Service.

GET STARTED

    Follow along on social media

Get in touch with us here

Address: Basavaraj Tonagatti,
1446, Aastha, Sir M Vishweshwarayya Layout, 5th Block, Bangalore-560056.

Phone: (+91) 9019580450

Email: tonhokrani@gmail.com

Subscribe to our newsletter

Newsletter Signup

Subscribe to our weekly newsletter below and never miss the latest product or an exclusive offer.

Enter your email address

© Copyright 2020

Return to top