ROI Calculator

What ROI tells you — and what it hides

Return on investment is the most quoted number in finance, and for good reason: it distils a deal into one figure. Put in ₹1 lakh, get back ₹1.5 lakh, and you have made a 50% ROI. It works for a stock, a mutual fund, a rental flat or a business project, which is why it is the common language of investors everywhere.

But that simplicity conceals a critical blind spot — time. A 50% ROI earned in one year is a stellar result; the same 50% earned over ten years is mediocre. ROI alone cannot tell the two apart, and that is where many comparisons go wrong.

Why CAGR completes the picture

Compound annual growth rate (CAGR) fixes ROI's blind spot by expressing the return as a smooth, equivalent per-year rate. It answers the question ROI cannot: how fast did this money actually grow?

Consider two investments that both double your money:

• One doubles in 2 years — a CAGR of about 41% a year.
• The other doubles in 10 years — a CAGR of only about 7% a year.

Both show a 100% ROI, yet they are worlds apart as investments. This is why serious investors always read ROI and CAGR together: ROI for the total gain, CAGR for the growth rate.

Making ROI honest

An ROI figure is only as truthful as the numbers you feed it. The most common mistake is ignoring costs. To get a real, all-in return:

• Add fees — brokerage, expense ratios and transaction charges — to the amount invested.
• Net out taxes — capital gains tax and STT reduce what you keep.
• Include hidden costs like maintenance or interest on borrowed capital.

A headline ROI of 50% can quietly shrink to 40% once fees and taxes are honestly accounted for.

Using ROI to make better decisions

Treat ROI as a screening tool, not the final word. Before comparing opportunities, set a minimum acceptable return based on the risk you are willing to take, and reject anything that falls below it. When two options survive, normalise them with CAGR so you are comparing annual growth rather than raw totals, and weigh the risk and liquidity behind each number. For investments with irregular cash flows spread across time — like a SIP or a project with staggered payouts — reach for XIRR instead, which handles timing that simple ROI ignores. Used this way, ROI becomes a fast, reliable first filter that points you toward the deals worth a deeper look.