Understanding how your money grows is essential in making sound financial decisions. Whether you are investing in insurance, or fixed deposits, knowing how to calculate ROI (Return on Investment) helps you measure profitability and compare different investment options. In this comprehensive guide, we’ll break down ROI calculation formulas, provide examples for various financial products, and highlight strategies to maximize returns while avoiding common pitfalls.
Return on Investment (ROI) is one of the most widely used metrics in finance. It tells you how much profit (or loss) you have made compared to the amount invested. For Indian investors, ROI is especially crucial because of the variety of instruments available—ranging from market-linked products like ULIP plans to guaranteed savings instruments like fixed deposits.
A clear understanding of ROI ensures that you don’t just save but invest wisely to grow your wealth over time. For a deeper dive into strategies, check out Wealth Planning in India.
ROI is not just a number—it’s a decision-making tool. Here’s why it matters:
For beginners, combining ROI insights with broader investment principles such as diversification and risk assessment can improve decisions. You can read more in Top 10 Investment Tips for First-Time Investors.
The basic formula for ROI is:
ROI = (Current Value of Investment – Cost of Investment) / Cost of Investment × 100
For example, if you invested ₹1,00,000 in a mutual fund and its value grew to ₹1,20,000 after one year:
ROI = (₹1,20,000 – ₹1,00,000) / ₹1,00,000 × 100 = 20%
Life Insurance plans, especially savings-linked and ULIP plans, provide a mix of protection and returns. ROI in insurance is slightly more complex as it considers:
Example (Endowment Plan):
ROI = (₹15,00,000 – ₹10,00,000) / ₹10,00,000 × 100 = 50% over 20 years (~2.05% CAGR, assuming annual compounding; actual CAGR may vary based on bonus structure)
Note: Endowment plan returns may include non-guaranteed bonuses, which should be factored into ROI calculations.
Example (ULIP – Unit Linked Insurance Plan):
Returns fluctuate with market performance, so ROI must be tracked via fund value.
⚠️ Disclaimer: ULIP returns are market-linked and not guaranteed. Insurance primarily serves as risk protection, with returns being a secondary benefit.
Fixed deposits (FDs) are considered safe, guaranteed-return instruments.
Formula:
Maturity Value = Principal × (1 + Rate/N)^(N×Time)
Where:
Example:
Maturity Value ≈ ₹1,40,255
Total Gain = ₹40,255
ROI = (₹40,255 / ₹1,00,000) × 100 = 40.25% (over 5 years)
Annualized ROI ≈ 7%
FDs offer stability but may lag behind inflation-adjusted ROI compared to mutual funds.
Investors often make mistakes when interpreting ROI:
PNB MetLife offers long-term saving plans that balance protection and growth. These can be part of a well-rounded investment strategy:
These plans should be evaluated in the context of your goals, risk appetite, and time horizon.
Calculating ROI is the cornerstone of smart investing. Whether you’re considering other market funds, insurance, or fixed deposits, knowing how to measure profitability helps you compare, decide, and grow wealth effectively.
Key takeaways:
📌 Pro Tip: Align ROI goals with your financial planning journey. Consult professionals and explore PNB MetLife’s long-term savings plans to secure your future.
👉 Consult with PNB MetLife experts to improve your investment returns today.
The formula is: (Current Value – Cost of Investment) / Cost of Investment × 100.
Divide net gain by investment cost and multiply by 100. For long-term investments, consider annualized ROI (CAGR).
By comparing purchase NAV with current NAV multiplied by units held.
Yes. If the current value is lower than the investment cost, ROI will be negative.
Taxes on capital gains (mutual funds) or interest (FDs) reduce effective ROI. Always consider post-tax ROI.
No. ROI is overall return; CAGR annualizes growth over time. CAGR is more accurate for multi-year investments.
It depends on the product. Equity funds may yield 10–12% long term, while FDs may offer 6–7%.
Consider total premiums paid versus maturity/death benefit received, including bonuses (if applicable).
No. Only traditional guaranteed plans provide assured returns. ULIPs are market-linked and fluctuate.
There is no single “best.” It depends on risk appetite. Mutual funds offer higher potential ROI, FDs offer stability, and insurance combines protection with savings.
At least once a year for long-term investments; more frequently for market-linked products.
Yes. ROI helps estimate how much your current investments will grow, aiding in retirement corpus calculation.
Piyush Kataria, SEO Manager at PNB MetLife, is a seasoned digital marketing strategist with over a decade of experience in optimizing websites for search engines. His expertise extends to keyword research, content strategy, technical SEO, and link building, all of which have been instrumental in driving organic traffic growth at PNB MetLife. With a strong foundation in life insurance, Piyush leverages his industry knowledge to create targeted and effective SEO campaigns.
Sakshi Malhotra is a seasoned marketing professional associated with the Life Insurance industry since 2007. At PNB MetLife, she heads Digital Marketing and Direct to Customer line of business. She is responsible for driving effective customer engagement through the company’s website and social media channels. In addition, she drives customer online buying journeys to help them buy the right product.
The aforesaid article presents the view of an independent writer who is an expert on financial and insurance matters. PNB MetLife India Insurance Co. Ltd. doesn’t influence or support views of the writer of the article in any way. The article is informative in nature and PNB MetLife and/ or the writer of the article shall not be responsible for any direct/ indirect loss or liability or medical complications incurred by the reader for taking any decisions based on the contents and information given in article. Please consult your financial advisor/ insurance advisor/ health advisor before making any decision.
PNB MetLife India Insurance Company Limited
Registered office address: Unit No. 701, 702 & 703, 7th Floor, West Wing, Raheja Towers, 26/27 M G Road, Bangalore -560001, Karnataka
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