What is Return on Investment (ROI)?
Return on Investment (ROI) is a universal financial metric used to evaluate the efficiency or profitability of an investment. It measures the amount of return on a particular asset relative to its original investment cost.
Because it is expressed as a percentage rather than a raw currency amount, ROI allows investors to instantly compare the profitability of entirely different assets—whether you are comparing returns on a ₹10,000 mutual fund or a ₹1,000,000 piece of real estate.
How to Calculate ROI and Net Profit
Calculating your absolute return is incredibly straightforward. It involves two steps: finding your raw net profit, and dividing it by the original cost.
- Net Profit = Final Investment Value - Initial Investment Cost
- Total ROI (%) = (Net Profit / Initial Investment Cost) × 100
For example, if you bought stocks for ₹50,000 and sold them for ₹70,000, your Net Profit is ₹20,000. Your Total ROI would be (20,000 / 50,000) × 100, which equals a 40% return.
Total ROI vs. Annualized ROI: Why the Difference Matters
While Total ROI tells you how much money you made overall, it ignores one critical factor: Time.
Imagine two investments. Investment A yields a 50% Total ROI. Investment B yields a 20% Total ROI. At first glance, Investment A looks better. However, if Investment A took 10 years to reach that 50% mark, and Investment B took only 1 year to reach 20%, Investment B is vastly superior.
This is where Annualized ROI comes in. It smooths out your return to show you the equivalent steady compounding rate you earned each year.
Our calculator instantly computes both metrics simultaneously. If you want to accurately benchmark your stock or real estate returns against a standard fixed deposit (which is always quoted in annual terms), you must look at the Annualized ROI.