There are a number of calculators claiming to be a goal-based investment calculator available on the web. These calculators ask you your goal amount, the term of investment, expected return, and gives you the amount required to be invested each month. I can only wish that financial planning was so simple, while no automated process can replace a thoughtful, backtested, and unique financial plan, I have tried to give you a calculator that can actually be of assistance.
Any financial advisor of substance would tell you that no matter how far your goal is you do not invest 100% in equity, rather you implement asset allocation and invest in debt and equity according to this. Thus a major requirement for the calculator is that it should allow you to decide on the percentage of equity and debt allocation. Secondly, no one invests the same amount throughout the term, thus you should at least be allowed to decide on how much you will be able to increase your investment annually. The calculator gives you the maturity value based on the equity and debt allocation while reducing the equity allocation such that it becomes zero for the final year (except for single-year term). The annual increment in investment and annual rebalancing of the equity and debt portfolio is also taken into consideration for calculating the maturity value.
How to use the calculator
First part is about the details of your goal:
Amount Required For You Goal Today: You have to enter the amount you would require today for your goal. For example, if your goal is to buy a car, enter the present price of that car.
Annual Rate Of Inflation: You enter the inflation rate in this column
After How Many Years You Require The Amount: You enter the number of years you have until you require the amount for your goal. For example, for a goal of buying a car, you enter the amount of year after which you want to buy it.
Target Corpus: It is the amount you will require after the years you have selected. It is calculated on the basis of present value, inflation rate, and term all provided by you.
Second section is for calculating the investment required to achieve the target corpus in the selected time period.
Percentage Of Equity For First Year: You will invest a certain amount monthly to achieve your goal. Out of this how much you want to invest in equity, you have to mention in this field, the rest is considered for investment in debt instruments. You only enter the equity allocation for the first year, for rest years it is calculated automatically such that you invest 0% in equity for the last year. For gaols of up to 5 years, I recommend investing 0% in equity.
Expected Annual Rate Of Return For Equity: This is the annual rate of return you expect to generate from your equity portfolio.
Expected Annual Rate Of Return For Debt: This is the annual rate of return you expect to generate from your debt portfolio.
Monthly Total Investment: Total amount you can invest on a monthly basis in the first year, for the rest of the year it will be calculated based on the increment percentage you will enter in the next field. This amount is divided into equity and debt investment according to the percentage you have entered.
Annual Increase In Investment (in percentage): By what percentage you want to increase your investment annually, this increment is calculated on the basis of compound interest formula. This means if your first-year monthly investment is Rs1000 and you want to increase it by 5% each year, the monthly investment for the second year will be Rs1050, and for the third year will be Rs1102.5 per month.
Maturity Value: This is the maturity value of your investments, you can adjust the monthly installment to bring this as close as possible to the Target Corpus.
Here is a screenshot of an excel sheet doing the same operation as this calculator for your better understanding.
Vinod Negi