Future value helps in determining how much today’s investment is worth in the future. It is a variable of time value of money. A future value calculator estimates the worth of an investment at a future date. In this article, we have covered the concept of future value, future value calculator, how to use it and also its benefits.

Meaning of future value

Future value FV of a market investment is the value of the asset at a particular date in the future. In other words, the future value determines the amount to which a current asset or investment would grow over a period of time. The concept of future value determines the value of current savings and investment in the future. It helps in determining how much today’s investment is worth in the future.
Future value is a variable of the time value of money. Time value of money is a financial concept that is based on the idea that the value of money today is more than its worth in the future time period. Investors prefer receiving the money today than receiving it at a future date. Hence investors are advised to invest their money in a market investment that gives good returns.
Future value FV is beneficial to both financial planners and investors, as it helps in estimating the worth of an investment at a future date. Also, it helps individuals make informed financial decisions on the basis of their financial goals.
Furthermore, the concept helps in aiming at returns over and above inflation. Inflation is the increase or rise in prices of goods and services over a period of time. Inflation erodes the capital. Therefore, it is essential to invest in assets that help earn inflation-beating returns in the long term.
In a business sense as well, future value plays an important role. The future value helps in estimating the potential return from a business project. For example, with future value concepts, one can make business decisions with respect to investing money in a new project.

How to calculate future value?

Future value is the value of an investment at a future date. Calculating future value will help investors estimate their potential returns from an investment and aid them in making well informed financial decisions. Investors can invest in a lump sum or make continuous periodic investments like SIP in mutual funds. The calculation of future value in both cases is different.

Calculation of future value for one time or lumpsum investment

Calculation of future value for one time or lumpsum investment can be done using the future value formula

FV = PV * (1+r) ^ n

Where,

  • FV is the future value
  • PV is the present value
  • r is the rate of interest (usually per annum)
  • n is the tenure of investment (usually in years)

Let’s take an example of Ms Durga who wants to invest a sum of INR 50,000 for a tenure of 5 years and she expects a rate of interest of 10% per annum. The future value of Durga’s investment can be calculated using the future value formula, as shown below.

FV = 50000 * (1+0.1) ^ 5

FV = 80525.5

Hence the value of Ms Durga’s investment after five years is INR 80,525.

Calculation of future value for regular investments

For regular cash flows, the future value of an investment is calculated using the annuity formula. Future value of annuity helps estimate the future value of a series of recurring investments or cash flows at a certain date in the future. Following is the formula of future value of annuity.

FVA = C * (((1+r/n) ^ nt) – 1)/(r/n)

Where,

  • FVA = Future value of annuity
  • C = Regular investments
  • r = rate of interest
  • t = investment tenure
  • n = number of compounding periods

Let’s understand the future value of annuity with the help of an example. Mr Karthik wants to invest a sum of INR 5,000 every month for a tenure of 5 years or 60 months. He expects an interest of 12% per annum. It is assumed that the investments are made at the end of the month, and the interest is compounded monthly. The future value of Mr Karthik’s investments can be calculated using the FVA formula.

C = 5000

r = 12%/12 months = 1%

t = 5 years or 60 months

n = 12 compounding periods, the compounding frequency is monthly.

FVA = 5000 * (((1+12%/12) ^ 5*12) – 1) / (12%/12)

Future Value Annuity (FVA) = 5000 * (((1+1%) ^ 60) – 1) / 1%

FVA = 408348.349

Hence the value of Mr Karthik’s investment after five years or 60 months is INR 4,08,348. His total investment for a period of 60 months is INR 3,00,000. Hence the investment grew by INR 1,08,348 over a period of 5 years.

What is a future value calculator?

A future value calculator estimates the worth of an investment at a future date. It is a simple tool that calculates the future value of an investment. Following are the inputs of the future value calculator.

  • Periodic investment: It is the regular investment or periodic investment made by the investor.
  • Rate of interest: It is the interest that one expects from an investment.
  • Number of periods: It is the number of investment periods. It can be in months, quarters, or yearly based on the frequency of investment.

Upon entering the above inputs, the calculator gives the following outputs.

  • Future value of the investment: It is the future value of money invested.
  • Total periodic investment: It is the sum total of the investment made.
  • Total interest earned: It is the interest or returns that one earns from the investment. It is calculated by subtracting the total investment made from the future value of money invested.

How does a future value calculator work?

The future value annuity calculator uses the future value of the annuity formula for estimating the future value of an investment. There are many investors who end up investing small amounts of money instead of a lump sum investment. In those cases, one needs to use the future value of the annuity formula.

FVA = C * (((1+r/n) ^ nt) – 1)/(r/n))

Where,

  • FVA = Future value of annuity
  • C = Regular investments
  • r = rate of interest
  • t = investment tenure
  • n = number of compounding periods

Let’s take an example of Ms Harini, who invests INR 10,000 at the beginning of every quarter for a period of 4 years or 16 quarters. She expects an interest of 15% per annum. The value of Harini’s investment can be calculated using the FVA formula.

C = INR 10,000

r = 15% per annum

n = 4 compounding periods per annum, the compounding frequency is quarterly.

t = 4 years or 16 quarters

FVA = 10000 * (((1+15%/4) ^ 4*4) – 1)/(15%4)) * (1+15%/4)

FVA = 221949.693

Since she invested at the start of each quarter, there will be one extra compounding period. Hence, the future value of Ms Harini’s investment in INR 2,21,950. Her investment is INR 1,60,000. The interest she earned is INR 61,949.69.

How to use Scripbox’s Future Value Calculator?

Scripbox’s Future Value Calculator is available online and is free to use. One can calculate the future value of their investment using this calculator. To be able to determine the future value of an investment, one has to visit the Scripbox website.

The following steps help one to use the Scripbox’s Future Value Calculator:

Open the Scripbox’s future value annuity calculator.

Input the following details, such as:

  • Periodic investment amount
  • Rate of interest
  • Number of periods

The Scripbox’s calculator then computes the following outputs:

  • Future value of investment
  • Total periodic investment
  • Total interest

Benefits of using FV calculator

Following are the benefits of future value calculator:

  • Ease of use: The future value calculator helps to estimate the future value of an investment. And also the total interest one can earn from the investment.
  • Relatively Accurate results: The FV calculator provides accurate results. However, it is important to note that the future value of an investment is just an estimation. Moreover, the FV calculator does not guarantee returns. Therefore, one should only use the calculator only to estimate the future value of their investment option.
  • Fast computation: The calculator determines the results within seconds. It saves time from doing complex calculations.
  • Better Planning: By computing the future value of an investing one can better plan their financial goals and investments. In other words, one can determine how long they would need to achieve their goal. One can analyse the results and devise an investment plan such that they can achieve their goals faster.
  • Free to use: The future value calculator is available online on Scripbox’s website and is free to use. Therefore, one can use the calculator to estimate the future value of an investment option across multiple scenarios. Using the calculator to test multiple scenarios and comparing the results will help an individual in making a better investment decision.