1. What is Time Value of Money?

The Time Value of Money (TVM) concept states that money available now is worth more than the same amount in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received.

2. How Does the Calculator Work?

The calculator uses the Future Value formula:

Where:

• \( FV \) — Future Value (INR)
• \( P \) — Principal Amount (INR)
• \( r \) — Annual Interest Rate (%)
• \( n \) — Time Period (years)

Explanation: The formula calculates how much an investment made today will grow at a given interest rate over a specified time period.

3. Importance of TVM Calculation

Details: Understanding TVM helps in making informed financial decisions about investments, loans, retirement planning, and comparing different financial options.

4. Using the Calculator

Tips: Enter principal amount in INR, annual interest rate in percentage, and time period in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How is this different from simple interest?
A: This formula calculates compound interest where interest is earned on both principal and accumulated interest, unlike simple interest which is only on principal.

Q2: What's a typical interest rate in India?
A: As of 2023, fixed deposit rates in India range from 6-8% for most banks, but can vary based on tenure and economic conditions.

Q3: Can I calculate monthly compounding?
A: For monthly compounding, divide annual rate by 12 and multiply years by 12. The formula becomes FV = P × (1 + (r/12)/100)^(n×12).

Q4: How accurate is this calculator?
A: It provides precise mathematical calculations, but actual returns may vary due to factors like changing interest rates or taxes.

Q5: Can I use this for SIP calculations?
A: This calculates lump sum investments. For SIP (regular investments), you would need a different formula accounting for periodic contributions.