Maturity value on term deposits

Q:- I want to invest Rs 75,000 in a bank fixed deposit for 10 years at 9 per cent interest per annum.
How much will I get on maturity?
When you invest in a fixed deposit for a certain period, the final maturity amount can be calculated
using the compound interest formula. The interest earned is a fixed percentage per annum but banks
usually compound it every quarter. Therefore, one gets more on quarterly compounding rather than
from annual compounding.
Formula: Maturity value = P*(1+R%)^N
• Here, P is the amount invested (Rs 75,000)
• R is the rate of interest charged per annum (9 per cent)
• N is the time duration in years (10 years)
This formula is for annual compounding. But, since banks compound quarterly, the formula becomes:
=P*(1+R/4)^(4*N)
What you need to type is =75000*(1+9%/4)^(4*10)
When you hit enter the value 1,82,639 will show in the cell. This is the maturity value.
Maturity value on recurring deposit
Q:- My daughter is 10 years old. I want to start a recurring deposit in a bank of Rs 2,000 a month. The
interest rate is 8 per cent per annum compounded quarterly. How much will I get when she turns 20?
The formula used is:
M = P [(1+R)n–1]
________________________________________1-(1+R)-1/3
Formula: Maturity value = P*((1+R)^N-1)/(1-(1+R)^(-1/3))
• P is the amount invested each month (Rs 2,000).
• R is the interest rate (8 per cent). However, as it is compounded quarterly the interest rate would be =
8 / 400 which gives 0.02
• N is the number of quarters over the duration, that is 40 quarters over 120 months.
So, you need to type in =2000*((1+0.02)^40-1)/(1-(1+0.02)^(-1/3))
When you hit enter, you will get Rs 3,67,233 as the maturity value.
Compounded annualised growth rate
Q:- I had invested Rs 1 lakh in mutual fund five years back at an NAV of Rs 20. Now, the NAV is Rs
70. How should I calculate my returns on an annual basis?
The gain of Rs 50 over five years on the initial NAV of Rs 20 is a simple return of 250 per cent
(50/20*100). This, however, does not mean 50 per cent average return over five years. The
compounded annualised growth rate (CAGR) needs to be calculated here to find out what the growth
has been over a period of time.
Formula: Returns = (((M / I)^(1 / N))-1)*100
• Here, M is the maturity value (Rs 70),
• I is the initial value (Rs 20) and
• N is the time duration in years (5 years).
So, you need to type in =(((70/20)^(1/5))-1)*100
When you hit enter, the CAGR comes to 28.47 per cent.
Annualised yield
Q:- My fixed deposit of 10 per cent interest per annum is compounded quarterly. What is its actual
yield? What if it has been compounded monthly? What if the deposit is of more than a year?
Here, 10 per cent is the nominal rate of interest. As interest is compounded every quarter, the effective
interest amount, and thus the yield, increases. Higher the frequency compounding, more is the yield.
Formula: Yield = ((1+R/N)^n-1)*100
• Here, R is the rate of interest,
• N is the number of compounding periods per year and
• n is the number of quarters in the total period.
So, if compounding is quarterly: Yield = ((1+0.10/4)^4-1)*100= 10.38%
If compounding is monthly: Yield = ((1+0.10/12)^12-1)*100= 10.47%
A deposit of Rs 1 lakh at 10 per cent simple interest per annum would yield Rs 1,10,000. However,
because of compounding it yields Rs 1,10,380. A longer period of deposit will enhance the yield.
However, if the deposit is for more than a year, say, for two years, then there will be eight quarters.
Formula: =(((1+R/4)^n-1)*100)/2
=(((1+10%/4)^8-1)*100)/2 = 10.92%
Home loan EMI
Q:- I have a home loan of Rs 30 lakh for a period of 20 years at a floating interest rate of 9 per cent. I
want to ensure that my bank is charging me the right EMI. How to calculate my EMI?
The loan being on floating interest rate, the EMI would keep changing as rates change. On a given
date and on known parameters like rate of interest and the loan amount, you can calculate the EMI.
Formula: EMI =(A*R)*(1+R)^N / ((1+R)^N-1)
• Here, A is the loan amount and
• R is the rate of interest.
• Convert R into monthly rate (= 9%/12 or =9/1200). This will be 0.0075
The EMI using the formula will be:
= (3000000*0.0075)*(1+0.0075)^240 / ((1+0.0075)^240-1)= 26,992
So, your EMI is Rs 26,992.