Time Value of Money Calculator
Visualization
Created by :- Reema
TVM Calculator (Time Value of Money)
Concept, Formula, and Examples
The Time Value of Money (TVM) is a fundamental financial principle that explains how the value of money changes over time. A TVM calculator helps individuals, students, investors, and financial planners assess the future value or present value of cash flows, enabling smarter decision-making in areas like investing, loans, and savings.
In this article, we'll explore what TVM means, how a TVM calculator works, formulas behind the scenes, and real-life examples of how to use it effectively.
What is the Time Value of Money (TVM)?
The Time Value of Money is the idea that money available today is worth more than the same amount in the future due to its earning potential. This core concept underlies virtually all areas of finance.
For example, ₹1,000 today can be invested to earn interest. That same ₹1,000 a year later is worth less because you missed the opportunity to invest it.
Key Components of TVM
- Present Value (PV) - The current value of future money.
- Time Period (n) - The number of compounding periods.
- Future Value (FV) - The amount money grows into after interest.
- Interest Rate (r) - The rate at which your money grows.
- Payment (PMT) - Periodic cash flows (like SIPs, EMI, annuities).
TVM Formulas
Future Value (FV)
When you know the present value and want to find how much it will grow:
FV = PV × (1 + r)n
Present Value (PV)
When you know the future value and want to find its worth today:
PV = FV / (1 + r)n
Future Value of Annuity
For recurring payments (like SIPs or EMIs):
FV = PMT × [( (1 + r)n - 1 ) / r ]
Present Value of Annuity
For valuing a series of future payments today:
PV = PMT × [ (1 - (1 + r)-n ) / r ]
Where:
PV (Present Value): = The value of money today
FV (Future Value): = The value of money at a future date
PMT (Payment): = The fixed amount paid or received in each period (e.g., EMI, SIP, pension)
r (Interest Rate): = The rate per period (e.g., 8% annually = 0.08)
n (Number of Periods): = Total number of time periods (e.g., 5 years × 12 months = 60 periods)
TVM Calculator - How It Works
A TVM calculator allows you to input any 4 of the 5 variables (PV, FV, r, n, PMT) and solve for the fifth. It saves time and minimizes errors in complex financial calculations.
Example 1: Simple Future Value Calculation
Question: You invest ₹10,000 at 8% annual interest for 5 years. What is the future value?
FV = 10,000 × (1 + 0.08)5 = 10,000 × 1.4693 = ₹14,693
So, your investment grows to ₹14,693 in 5 years.
Example 2: Present Value of Future Sum
Question: You need ₹50,000 in 3 years. What should you invest now at 6% annual return?
PV = 50,000 / (1 + 0.06)3 = 50,000 / 1.1910 ≈ ₹41,981
Invest ₹41,981 today to have ₹50,000 after 3 years.
FAQ on TVM Calculator
Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus accumulated interest over time. TVM calculations typically use compound interest to reflect real-world scenarios more accurately.
Yes. A TVM calculator can calculate the present value of loan payments, estimate EMIs (if payment and interest rate are known), and show the total interest paid over time—helping you compare loan offers and manage debt efficiently.
TVM calculators are highly accurate as long as correct inputs are provided. Always ensure the interest rate, compounding frequency, and number of periods match your scenario (monthly, annually, etc.).
PMT stands for payment. It refers to a series of equal periodic payments (like SIPs, EMIs, or pension payouts). TVM calculators use PMT in annuity-based calculations like "present value of annuity" or "future value of annuity."
Absolutely. By entering your monthly savings amount, expected rate of return, and retirement duration, a TVM calculator can project how much you’ll accumulate by retirement—making it an essential tool for long-term financial planning.