ROI Calculator

How to Calculate ROI

Enter initial investment, final value and the holding period in years. Furthermore, the inflation and tax fields produce real and post-tax returns. Additionally, the benchmark rate compares your actual return against a market index return.

1. Enter initial investment and final valueUse the cost basis including brokerage, taxes and fees paid at entry. Furthermore, the final value should include dividends received and reinvested. Additionally, for real estate, include stamp duty, registration and renovation costs in the initial investment.
2. Set the holding period in yearsAnnualised ROI normalises returns across different time horizons. Furthermore, comparing a 2-year and 5-year investment using simple total ROI is misleading. Additionally, annualised ROI equals CAGR — the compound annual growth rate of the investment.
3. Enter inflation and tax ratesThe real ROI adjusts for inflation using the Fisher equation. Furthermore, long-term equity gain tax in India is 10% above ₹1 lakh. Additionally, US long-term capital gains tax ranges from 0% to 20% depending on total income.
4. Set the benchmark rateThe benchmark is your hurdle rate or index return to compare against. Furthermore, 12% is a common benchmark for Indian equity (Nifty 50 long-run average). Additionally, 10.5% is the approximate S&P 500 long-run average including dividends.
5. Read alpha versus the benchmarkAlpha is the return above the benchmark — positive alpha means outperformance. Furthermore, alpha of +1.19% annualised over 3 years represents meaningful outperformance. Additionally, consistent positive alpha over market cycles is the primary goal of active fund managers.

ROI Formula — Simple and Annualised

Simple ROI measures the total percentage gain on an investment. Furthermore, it does not account for the time taken to achieve that return. Additionally, annualised ROI (CAGR) normalises returns across different holding periods for fair comparison.

Simple ROI vs Annualised ROI — Why It Matters

A 100% simple ROI over 10 years is not better than 50% over 3 years. Furthermore, 100% over 10 years = 7.18% annualised. Additionally, 50% over 3 years = 14.47% annualised — twice as fast. Always use annualised ROI for cross-investment comparison.

Real ROI — Inflation-Adjusted Returns

Nominal returns include inflation's effect. Furthermore, a 10% return when inflation runs at 6% produces only 3.77% real purchasing power gain. Additionally, long-term investors must compare returns to inflation to measure true wealth creation.

India's retail inflation (CPI) has averaged 5–6% over the past decade. Furthermore, equity investments producing 12% nominal returns create 6–7% real returns. Additionally, fixed income returns at 7–8% nominal barely keep pace with inflation after tax, often producing near-zero real returns.

ROI on Different Asset Classes

Capital Gains Tax and Post-Tax ROI

India taxes long-term capital gains (LTCG) at 12.5% above ₹1.25 lakh per year. Furthermore, short-term capital gains (STCG) on equity are taxed at 20%. Additionally, equity mutual fund LTCG applies for holdings above 12 months with indexation not available for equity.

US long-term capital gains tax is 0%, 15% or 20% depending on total taxable income. Furthermore, assets held over 12 months qualify for long-term rates. Additionally, short-term capital gains in the US are taxed as ordinary income up to 37%.

Alpha — Measuring Performance Against Benchmark

Alpha measures the excess return over a benchmark after adjusting for risk. Furthermore, a positive alpha means the investment outperformed its benchmark. Additionally, consistently generating positive alpha is difficult — most active fund managers underperform their benchmark over 10-year periods.

SEBI AMFI data shows that fewer than 30% of large-cap active funds beat the Nifty 50 index over a rolling 10-year period. Furthermore, this makes index fund investing (zero alpha target) a rational strategy. Additionally, the alpha displayed in this calculator is simple annualised outperformance, not risk-adjusted alpha.

Negative ROI — How to Interpret Losses

Negative ROI means the investment returned less than the initial cost. Furthermore, a -20% ROI over 2 years means the investment lost 20% of its value. Additionally, annualised negative ROI shows the annual rate of loss — useful for assessing how quickly to exit deteriorating investments.

The most dangerous framing error is comparing a positive nominal return to a negative real return. Furthermore, a 4% FD return with 6% inflation represents a -1.9% real return. Additionally, money in a savings account earning 3% against 5% inflation is losing purchasing power every year.

Frequently Asked Questions

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