ROI Calculator
Calculate Return on Investment (ROI) and annualized returns (CAGR). Compare investment performance and make better financial decisions.
What is ROI (Return on Investment)?
Return on Investment (ROI) is the most fundamental metric to measure investment performance. It calculates the percentage gain or loss relative to your initial investment, helping you understand how efficiently your money is working.
Our ROI calculator provides both simple ROI (total return) and CAGR (annualized return), enabling fair comparison between investments held for different time periods.
ROI Calculation Formulas
Simple ROI
ROI = ((Final Value - Initial Investment) ÷ Initial Investment) × 100
CAGR (Compound Annual Growth Rate)
CAGR = ((Final Value ÷ Initial Investment)^(1/Years) - 1) × 100
ROI Calculation Example
| Initial Investment | ₹5,00,000 |
| Final Value (after 5 years) | ₹8,50,000 |
| Absolute Profit | ₹3,50,000 |
| Simple ROI | 70% |
| CAGR | 11.2% per year |
Why CAGR Matters More Than Simple ROI
Simple ROI doesn't account for time. Consider these two investments:
| Investment | Simple ROI | Duration | CAGR |
|---|---|---|---|
| Stock A | 50% | 2 years | 22.5% |
| Stock B | 50% | 5 years | 8.5% |
| FD | 40% | 5 years | 7.0% |
Stock A with 50% ROI in 2 years (22.5% CAGR) vastly outperforms Stock B with same 50% ROI in 5 years (8.5% CAGR). Always use CAGR for comparison.
ROI Benchmarks by Investment Type
| Investment | Expected CAGR | Risk Level |
|---|---|---|
| Savings Account | 3-4% | Very Low |
| Fixed Deposits | 6-7% | Low |
| PPF | 7.1% (current) | Very Low (govt. backed) |
| Debt Mutual Funds | 6-8% | Low-Medium |
| Gold | 8-10% | Medium |
| Large Cap Equity Funds | 10-12% | Medium |
| Mid/Small Cap Funds | 12-15% | High |
| Real Estate (Tier 1 cities) | 8-12% | Medium |
| Direct Stocks | Varies widely | High |
Rule of thumb: If an investment promises returns significantly higher than these benchmarks, scrutinize the risk carefully.
Real vs Nominal Returns
Always consider inflation when evaluating ROI:
Real Return ≈ Nominal Return - Inflation Rate
| Investment | Nominal Return | After 6% Inflation |
|---|---|---|
| Savings Account (3.5%) | 3.5% | -2.5% (losing purchasing power) |
| FD (7%) | 7% | +1% (barely beating inflation) |
| Equity Fund (12%) | 12% | +6% (real wealth creation) |
ROI for Business Investments
Business investments (equipment, marketing, expansion) need higher ROI to justify the risk and opportunity cost:
- Marketing ROI - Target 3:1 to 5:1 (300-500% ROI)
- Equipment purchase - Should pay back within 2-3 years (33-50% annual ROI)
- New product development - Typically needs 5:1 return to justify R&D risk
- Business expansion - Minimum 20-25% annual returns expected
Common ROI Mistakes
- Ignoring time value - Always convert to CAGR for fair comparison
- Forgetting costs - Include brokerage, taxes, maintenance in calculations
- Comparing apples to oranges - Don't compare FD ROI with equity ROI without considering risk
- Survivorship bias - Failed investments are often forgotten, skewing perception
- Not accounting for taxes - Post-tax ROI is what matters for your pocket
Tax Impact on ROI
| Investment | Pre-Tax CAGR | Tax Rate | Post-Tax CAGR (approx) |
|---|---|---|---|
| FD (30% slab) | 7% | 30% | 4.9% |
| Equity MF (>1yr) | 12% | 12.5% LTCG | 10.5% |
| PPF | 7.1% | 0% (EEE) | 7.1% |
| ELSS | 12% | 12.5% LTCG (above ₹1.25L) | ~11% |
Frequently Asked Questions
Can ROI be negative?
Yes, negative ROI means you lost money. A -20% ROI means your ₹1,00,000 investment is now worth ₹80,000. Negative ROI is common in stocks, crypto, and business investments that don't work out.
How do I calculate ROI with dividends?
Include dividends in your final value. If you invested ₹1,00,000, received ₹5,000 dividends, and current value is ₹1,20,000, total return = ₹1,25,000 - ₹1,00,000 = ₹25,000. ROI = 25%.
What's the Rule of 72?
Quick way to estimate doubling time: Years to double = 72 ÷ CAGR%. At 12% CAGR, money doubles in 72÷12 = 6 years. At 8%, it takes 9 years. Useful for quick mental calculations.
Should I use ROI or IRR?
Use ROI/CAGR for single investment, single redemption. For multiple investments at different times (like SIP), use XIRR which accounts for timing of each cash flow and gives accurate annualized returns.