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Future Value Formula:
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The Future Value calculation projects the growth of a mutual fund investment using compound interest. It helps investors understand how their initial investment will grow over time based on a fixed annual return rate.
The calculator uses the compound interest formula:
Where:
Explanation: The formula calculates how an initial investment grows exponentially over time due to compound interest, where earnings are reinvested to generate additional earnings.
Details: Understanding future value is crucial for financial planning, retirement planning, and investment decision-making. It helps investors set realistic expectations and make informed choices about their investment strategies.
Tips: Enter principal in USD, annual return rate as a decimal (e.g., 0.08 for 8%), and number of years. All values must be valid (principal > 0, rate ≥ 0, years between 1-100).
Q1: What is the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus accumulated interest, leading to exponential growth.
Q2: How accurate is this calculation for real mutual funds?
A: This provides a theoretical projection. Actual mutual fund returns vary due to market fluctuations, fees, and other factors not accounted for in this simple model.
Q3: What is a realistic annual return rate for mutual funds?
A: Historically, stock mutual funds average 7-10% annually, while bond funds average 3-5%. However, past performance doesn't guarantee future results.
Q4: Should I consider inflation in this calculation?
A: This calculation shows nominal returns. For real (inflation-adjusted) returns, subtract the expected inflation rate from the annual return rate.
Q5: Can this formula handle regular contributions?
A: No, this formula calculates future value for a single lump sum investment. For regular contributions, a different formula accounting for periodic investments is needed.