An investor chooses to invest mainly based on the returns that can be earned. Returns depend mainly on the investment amount, period, and interest rate. Calculating the ROI (Return On Investment) helps you select the best investment options and build a profitable portfolio. Most individuals look at the highest possible returns, and anything above 50% ROI sounds like a dream. Yet it is possible with smart investment planning and high-rate interest on fixed deposit.
There are various investment avenues an individual can choose from. ROI calculation can be used as an ideal method to check the profitability of the investment and choose from various options. Based on your financial goals, the investment that can earn high returns with the least risk can opt. One can increase their returns by investing in fixed deposits (FDs) in the RBI’s increasing policy rate scenario and get a 51% ROI.
What is ROI?
The ratio of profit against the cost of investment is called Return on investment. Returns received from an investment can be positive or negative. Positive returns refer to the profitability of the investment. If the ROI is negative, the investment will lead to a loss of money. This is why calculating ROI while investing protects an investor from risk and provides insight into a suitable portfolio. An ROI is a risk-free investment with banks as they are insured up to 1 lakhs (covers principal and interest) with the Deposit Insurance and Credit Guarantee Corporation (DICGC).
An investor who wants to open an FD account can calculate the ROI with the total investment made, rate interest on fixed deposit and tenure of investment. By modifying the investment amount and tenure, investors can receive a higher ROI percentage.
How to calculate Return On Investment?
Using the ROI formula, it is easy to calculate the risk and return on investments. It helps in analyzing the portfolio’s profitability beforehand and avoids losses. The formula for calculating ROI is as follows:
ROI= [Net profit / Cost of investment * 100]
The ROI from most investments is lower than 30-40% due to market volatility and shifts in interest rates. On the other hand, FDs offer returns at a fixed interest rate; therefore, you can calculate the ROI before investing in them.
How to Assure 51% ROI
You can look at the table given below to know how to calculate FD interest and how FDs offer as high as 52% ROI, depending on the type of FD you pick.
You can expect an ROI of 51% if you are a senior citizen. It is the highest ROI one can get with various FDs. If you make a deposit of Rs. 1 lakh with a financial institution offering high-yielding FD for five years, the interest amount will be as follows, depending on the investor’s category:
|FD Types||Interest rate||Interest amount||Yield|
|FD 1||8.35%||Rs. 49,329||49.32%|
|FD 2||8.45%||Rs. 50,020||50.02%|
|FD 3||8.70%||Rs. 51,757||51.75%|
Implement various strategies to maximise ROI
The investment tenor has to be aligned with your financial goals. It is not possible that every investor will have a long-term investment horizon. Let us discuss the simple methods that can help you strategise your investments for maximum returns.
Laddering – Most investors implement the “Laddering” strategy to FDs in order to earn higher returns. It simply means that the depositor needs to create deposits with different maturity periods. Following the strategy, your different FDs will mature one after the other and there will be a constant flow of money from your investments. You can choose tenures from 7 days to 20 years with reputed banks and plan the investments to meet your set goals. Also, you can ensure money is available whenever you need it without compromising your returns.
The profitability of an investment can be measured using this formula. Returns during different periods are calculated using the ROI calculator. Depending on the investment instrument, calculate the returns. If you are willing to invest in an FD, calculate FD interest and then use the formula mentioned above to calculate returns. There are many online interest and ROI calculators that will let you know the profitability of an investment with minimal effort.