A Comprehensive Guide to Understanding Investment Calculator Terminologies

If you play your cards right, investing in stocks, mutual funds, or any other asset can be the jackpot for you. But how do we do that? Well, keeping a tab on the performance of your investments can be as perplexing as solving a Rubik's cube for novice investors. 
Don't worry; we've got you covered with investment calculators. There are various tech-savvy tools that can help you track your investments, compare multiple options, and even predict future earnings based on several factors. 

Source: Shutterstock
Going further, the comprehensive guide below will walk you through some of the most common investment calculator terminologies. From understanding the investment amount to tax implications, we've got your back. So, sit tight and get ready to make some sound investment decisions.

12 Common Investment Calculator Terminologies
1.    Investment Amount
It is the money you plan to invest in a particular asset. You can enter the figure into an investment calculator that helps determine your investment's future value.
2.    Interest Rate
The interest rate is the percentage of your investment that you will earn in return. For example, if you invest ₹1000 at an interest rate of 5%, you will make ₹50 in interest.
3.    Compounding Period
It refers to the frequency at which your investment's interest is calculated and added to your investment. For example, suppose you have an investment with an annual interest rate of 5% and a quarterly compounding period. In that case, your interest will be calculated and added to your investment every three months.
4.    Time Horizon
It is the length of time you plan to hold your investment. You can enter the period into an investment calculator to determine your investment's future value.
5.    Inflation Rate
It is the rate at which the general level of costs for goods and services rises and, subsequently, purchasing power falls. After accounting for inflation, enter the inflation rate into the investment calculator to determine the real return on your investment.
6.    Rate of Return
The rate of return is the percentage increase or decrease in the value of your investment over a given period. This figure can be calculated using a calculator and can help you evaluate the success of your investment.
7.    Asset Allocation
Asset allocation divides your investment portfolio among diverse asset categories, like stocks, bonds, and cash, to balance risk and return depending up on your investment goals, time horizon, and risk tolerance.
8.    Risk Tolerance
Risk tolerance is the degree of risk an investor is ready to take on in pursuit of higher returns. An investment calculator can help you determine your risk tolerance and recommend an investment strategy that matches your risk profile.
9.    Return on Investment (ROI)
The return on investment (ROI) is the profit or loss you make on an investment, defined as a percentage of the initial investment amount. An investment calculating tool can help you calculate the ROI for different investment options and help you make an informed decision.
10.    Expense Ratio
The expense ratio is the percentage of your investment that pays fees and expenses associated with the investment, such as management fees, administrative costs, and marketing expenses. An investment calculator can help you compare the expense ratios of different investment options and choose the best value for your money.
11.    Volatility
Volatility is the degree of flux in the price of an investment over time. An investment calculator may help you understand the volatility of different investment options and choose the one that matches your risk tolerance.
12.    Tax Implications
Tax implications are the consequences of investing in different assets on your tax liability, such as stocks, bonds, or real estate. An investment calculator helps you understand the tax implications of other investment options and make an informed decision.

Source: Shutterstock
Understanding investment calculator terminologies is crucial for making informed investment decisions. And with an investment calculator, you can compare options, calculate future earnings, and evaluate your investment portfolio's performance. Apart from the commonly used calculators for investment, specific calculators are available for particular investment options. One such calculator is the Public Provident Fund (PPF) calculator.
 
What is a PPF and PPF Calculator?
Public Provident Fund, or PPF, is a long-term investment scheme offered by the Indian government to Indian residents. It is a safe investment option that offers attractive interest rates and tax benefits. 
A PPF calculator, on the other hand, is an online tool that helps investors calculate the interest earned on their PPF investment. It considers the investment amount, interest rate, and time horizon to determine the future value of your PPF investment.
Using a PPF calculator, investors can calculate the interest earned on their investment and the total maturity amount. This information can help investors make informed decisions about their PPF investment and plan their finances accordingly.
 
Closing Thoughts
So, while planning to invest, one must be aware of all the general investment calculator terminologies. Also, using a specific calculator that caters to a particular investment option like PPF calculator is very essential. With the help of these calculators, investors can accurately assess their investments and make informed investment decisions.
So, what are you waiting for? Calculate your investments and start investing wisely.