Investment choices depend on various factors. Considering these factors and evaluating their importance in making wise decisions is vital. It will help gain returns and invest safely. In this regard, the Return On Investment(ROI) is an important factor that can help decide on the investment choices precisely! So, what does ROI mean, and how can it impact your investment choices? Here is a detail to help you understand it to ensure the best value for your Investment. 

What is the Return On Investment(ROI)?

Return On Investment(ROI) is a metric that helps evaluate the profitability of different investment options available in the market. It will let you calculate the net income you can gain from your Investment. Therefore, it is the ratio of the net income gained to the amount invested.

ROI Calculation Formula – (Gain from the investment /Cost of the investment)

To evaluate it as a percentage, you can multiply the value calculated from the return on investment formula by 100.

What is the Impact Of ROI In Your Investment Choices?

Return On Investment, as discussed, is an important metric when making investment choices. So, how does it impact your decision?

• Helps compare different investment choices - The different financial institutions in India provide varied investment instruments to help increase your wealth in the long term. For example, equity investments, mutual funds, etc., give market-linked returns. Though market-linked investments provide a higher return in the long term, it carries a substantial amount of risk.
  
  

  So, choosing an investment with an affordable risk requires a metric for evaluation. The ROI of the investments in the long term can provide this detail for comparison and help make a valuable choice for increased wealth.
  
  

• Evaluate the performance of investment choices - When deciding on the investment product, you would wish to evaluate its performance to understand its consistency in providing the necessary returns. As you calculate the ROI, you can evaluate the performance of the investment product over a period and decide if that product can suit your investment needs.
  
  

• Simple methodology and quick interpretation - Calculating ROI is extremely simple. It takes a few minutes to determine the answer using the formula. While it does involve using important metrics, such as the cost of investment, net income, etc., it is simple to understand in its entirety.
  
  

  You can calculate ROI online if you still find it difficult to calculate the exact value. Online tools can provide the required value in very few seconds based on your input. You can calculate the ROI of different investment choices for the same period and determine the best product for all your financial needs.
  
  

• Available benchmarks – While the ROI provides a distinct value to evaluate the performance of an investment instrument, you need to have a benchmark to compare and find out if it is performing well in the market.
  
  

  Different financial institutions set benchmarks for the same kind of products with the help of expert advisors to determine if the investment product is worth the investment, considering the challenges in the market.
  
  

• Help achieve financial goals - Based on your current lifestyle and family financial commitments, you will decide your future money goals. Making an investment decision to achieve such financial goals is extremely crucial. Based on the ROI of different products, you can determine which product will provide the desired returns to accomplish your financial goals within the stipulated period.
  
  

• Help develop an investment strategy - Based on the ROI, you can develop an investment strategy by diversifying your portfolio. For example, you can determine the returns required and diversify the investments based on the available choices considering their ROI value.
  
  

  That way, you will be able to ascertain consistent returns even if there is an economic downfall. Choose investment funds from different industries and compare them with the ROI to invest in the best. Higher-risk investments will provide greater returns in the long term as the market corrects itself.
  
  

Based on the ROI and the above-discussed pointers, you can decide on a favourable investment choice. Moreover, choose flexible products because financial requirements and affordability keep changing in the long term. For example, insurance providers offer the ULIP policy that combines the benefit of a life cover and market-linked returns at maturity.

During the policy tenure of the ULIP plan, you can choose between equity, debt and hybrid funds based on your risk affordability. You can also switch between the chosen fund option based on the prevailing economic conditions that affect the investment value. While deciding between the fund options, you can utilise the ROI metric to choose the best option that will suffice your financial requirements. For example, the Tata AIA ULIP plans provide 11 different fund options you can compare and choose for long-term investment.

Conclusion

Investing for long-term returns requires adequate research. Different parameters provide valuable information that helps evaluate the investment choices. Return On Investment(ROI) is one such metric that is simple to understand, quick to interpret, and helps evaluate the performance of investment choices.

You can calculate the ROI of different products, compare the values considering the benchmark for qualifying and help achieve your financial goals timely. Choose a valuable investment product based on your income, risk affordability and future money goals and stay invested to benefit maximally!

L&C/Advt/2022/Jul/1509