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What is Present Value?

Present value (PV) refers to the current value of a future sum of money or stream of cash flows. The future sum of money is expected to be generated considering a specific return rate. The present value calculation is essentially a discounting of the future cash flows. 


In simple terms, PV is like reverse compound interest. You calculate the PV from the Future Value (FV) by discounting the future value at a certain rate. The higher your discount rate, the lower the present value.


Understanding the present value helps you assess the future fairness of an investment. Alternatively, it helps you assess the amount you need to set aside to reach a certain future value. 

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What is the Present Value Calculator?

The present value calculator is an online tool that helps you compute the PV of a sum of money in the future. Using this calculator is helpful and essential for long-term investments. 


This is because it lets you estimate the current value of assets and whether or not they will build up to the required corpus. If the estimated returns fail to reach the amount you were hoping for, you could make an informed decision to invest in other instruments.


Using a PV calculator, you can also determine the sum you need to invest today for a future financial goal. For the present value calculation, you will need to input the following details: 

  • The future sum value you are aspiring to achieve

  • The time period (typically calculated in years)

  • Rate of interest

  • Frequency of compounding

  • Cash flow payments to be made

  • The growth rate of annuities

Use of the Present Value Calculator

Once you have the above details, you can follow the steps outlined below to use the present value calculator:

  • Assess and estimate your future requirements and enter the amount you hope to gain in the future

  • Calculate the annual interest and discount rates and enter the value into the required field

  • Enter the number of years in the field, marking the period

  • Submit the details to get the present value of the amount you need in the future


Knowing the benefits is also imperative now that you know how to use a present value calculator. 


Here are some of the benefits of the present value calculation with a calculator:

1. Ease of Use

You need not carry out manual calculations, which can be tedious and prone to errors. With an online calculator, you can easily calculate the PV and make the right decision. 

2. Choose the Best Annuity Plans

Annuity plans are a boon, especially once you retire and no longer draw a regular income. You can choose the best annuity plans that align with your retirement needs using the PV Calculator.. 

3. Analyse Investments Better

One way to assess whether an instrument is good is to compare the costs with the returns. A present value calculator is a reasonably accurate tool as it helps estimate an asset’s future worth and profitability, which you can use to determine the cost.

4. Take Measures to Meet Future Goals

By calculating your future goal’s present value, you can assess how much money you require to set aside for making investments for your future. Once you ascertain the amount you need to invest today, you can immediately begin taking measures to have that amount. 

5. Invest Without Worrying About Inflation

The discount rate is usually calculated while performing the present value calculation, which takes inflation into account. As a result, the current value calculation allows you to decipher your assets' future value without stressing about how inflation may negatively impact them.

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Formula to Calculate Present Value

The present value formula is simple, but manual calculations may take a while, and online calculators may be a better alternative. However, despite this, it is essential to know the formula to calculate the present value. 


At the core of it, the present value is just the current value of a future amount plus future cash flows and/or annuity payments. The formula for calculating the PV is as follows:


PV = FV/(1+i)n


FV = Future Value

t = Number of Time Periods

R = Rate of Interest

n = Compounding Frequency


Decisions relating to investments can often take a lot of time. Finding the best investment aligning with your requirements by knowing the present value is one of the best ways to assess an asset’s worth. 


In addition, understanding the current value with a present value calculator will help ensure that your investments can cover your future expenses and requirements. Once you know which instrument to invest in and how much to invest, you can easily invest via Bajaj Markets. 


The information provided by BFDL herein above is related to the Non-Partnered Banks/ NBFCs and is just for the purpose of information and under no circumstances the information provided hereinabove is intended to be source of advice or recommending any financial investment advice or endorsement of any sort. 

The information including interest rates with regard to fixed deposit, provided on this website is gathered through publicly available sources over the internet and is considered as accurate and reliable to the best of our knowledge. BFDL disclaims any responsibility or liability regarding inaccuracies, omissions, mistakes etc. as well as offers by the Non-Partnered Banks. The use of information set out is entirely at the User’s own risk and User should exercise due care prior taking of any decision, on the basis of information mentioned hereinabove. You are advised to visit/ contact the respective Banks/ NBFCs to verify the information before making any investment or opening an account. Further, BFDL does not undertake any responsibility or liability to update this information. YOU ARE SOLELY RESPONSIBLE FOR ANY LIABILITY OR DAMAGE YOU INCUR THROUGH ACCESS TO OR USE OF THE SITE OR SUCH INFORMATION OR MATERIALS EXCEPT WHERE THE LAWS AND REGULATIONS OF A PARTICULAR JURISDICTION CONCERNING WARRANTIES CANNOT BE WAIVED. Additionally, display of any trademarks, tradenames, logo and other subject matters of intellectual property owners. Display of such Intellectual Property along with the related product information does not imply BFDL’s partnership with the owner of the Intellectual Property of such products. 

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FAQs on Present Value Calculator

While PV is the present value or the initial amount, the FV or the future value is the final amount. According to the formula, PV equals FV divided by 1 plus the applicable interest rate for each period raised to the maximum number of periods.

This is the mathematical formula to calculate PV from FV: PV = FV/(1+i)^n

When you invest, various factors, such as inflation and other geopolitical conditions, affect your returns. Remember that the money you invest today never equals the same amount in the future. 


Hence, using a present value calculator helps you determine the amount you must invest today, which can help you align with your financial objectives. This calculator also aids in choosing the best investment option.

This is important as it lets you assess whether or not your investment decision is accurate. When you calculate present and future values for any investment, you are aware of the amount you can earn over a significant period. Based on that, you can assess if the accumulated corpus is enough for your requirements.

The present value aids in calculating the value of future cash flow in today’s scenario. On the other hand, the future value helps derive the value of the current cash flow based on the growth rate assumptions.

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