How to operate MS Excel to arrive at the corpus you can amass

We all save and invest to fulfil our future desires. While some manage to save a significant portion of their incomes, others put away only a meagre amount. Irrespective of the level of savings, proper investment planning is required to achieve financial goals. While planning, the following questions come up:

How much will be my corpus in, say, 10 years if I save Rs X amount every month, or every quarter, or year? What will be the future value of the amount I invest as a lump sum? The answers to these questions lie in the mathematical concepts of 'compounding' and 'time value of money'. Those who want to estimate the future value of their investments should have some knowledge of the basic exponential and logarithmic functions.

This is because the equations used in estimating future values require the application of these basic mathematical concepts. Most people are reluctant to solve equations and, instead, seek the help of financial planners to get the answers. Though such calculations can be easily done using scientific calculators, one needs to understand the operational features of these calculators.

Apart from solving mathematical equations and operating scientific calculators, if one knows the basic MS Excel functions, the calculations can be done in seconds. Excel takes care of all mathematical functions, such as addition, division, multiplication, exponential and logarithms. The user only needs to put in his savings or investment, the interest rate, and tenure of investment.

The future value or corpus appears in seconds. The best part is that the user can create scenarios by changing the variables and a new corpus shows up instantly.

Let us explore the FV function of MS Excel with an example. Rajeev wants to invest Rs 8,000 every month for 10 years. If the interest rate is 9% per annum, he wants to know the corpus value after 10 years. Open an Excel sheet and go to 'Formulas'. Select 'Insert Function' and then 'Financial' from the drop-box menu. In the 'Financial' function, select 'FV', after which the following box will appear:

1) Input variables

Let us look at the input variables of the FV function. The first is the rate, which is the rate of interest one expects from the investment. In this case, it is 9%. The important point here is that, if the investment is monthly (as in our example), the interest rate needs to divided by 12. If the investment is quarterly, the rate is divided by 4.

If the investment is twice a year, the factor for rate is 2. Nothing needs to be done if the investment is annual. The second input is Nper, which is the tenure of investment. In our example, this is 10 years. Depending on the frequency of investment, the tenure needs to be multiplied by the respective factor.