Investing your hard-earned money can be a daunting task, especially when you’re uncertain about the potential returns. However, there is one crucial factor that can help you make informed investment decisions – ROI or return on investment. ROI is the total return (or losses) your investment has yielded and is expressed in percentage to show effective growth or fall in your total investment corpus.
Calculating ROI is simple.
For annual returns, divide the net profit by the cost of investment and multiply it by 100.
ROI for annual returns is calculated as :
(Net profit/Cost of Investment)× 100
For example, Mr. X invests 500,000 in the forex market and he gets 50,000 per annum. Thus, his ROI is :
(50,000/500,000)* 100 = 10%
ROI is a vital ratio for estimating potential returns your investments can earn. It also helps in calculating ROI for different securities and understanding their risk exposure. This way, an investor can make wise decisions in picking an asset class that suits their risk and return appetite.
In the equity market, it’s advisable to buy and hold assets for a long time period. Equity markets undergo huge market cycles, so investors can analyze the phase of the market and buy the stock at a low price point and then sell at a high price point, thereby maximizing their ROI.
Another factor that affects ROI is the risk-return correlation. The lower the risk associated with the instrument, the lower the return. It’s essential to understand this correlation when investing in mutual funds. Mutual funds are classified into different categories based on their risk and return matrix. For instance, liquid funds are primarily invested in debt securities with a time horizon of one year and an annualized return of 6-7%, whereas aggressive funds invest over 80% in equity with a time horizon of over five years, providing an annualized return of over 15%.
| Category of Mutual Funds | Instrument Structure | Time Horizon | Annualized Returns |
| Liquid Funds | > 80% debt | 1 year | 6-7% |
| Debt Funds | > 80% Debt | 1-2 Years | 7-9% |
| Balanced Advantage Funds | 60% Debt, 40% Equity (Fluctuates asset class) | 2-3 Years | 11-13% |
| Balanced Funds | 50% Debt, 50% Equity | 3-5 years | 13-15% |
| Aggressive Funds | > 80% Equity | > 5 Years | >15% |
Investors willing to make regular or heavy returns from financial markets need to run through a plethora of analysis, backtesting, and market research. However, with the advent of AI-based platforms like Algobulls, the process has become a lot easier. Algobulls brings on board industry professionals who make both generic and investor-specific algo-strategy which only requires manual execution.
Algobulls offers a ready-made strategy with years of backtesting, market evolved research, and algorithmic analytics. The platform takes care of everything from order management to P/L Tracking and trade completion, freeing up investors’ time to focus on other aspects of their lives.
In conclusion, ROI is the pillar of every investment. It helps investors estimate the potential returns and understand the risk associated with an asset class. With Algobulls, investors have access to a ready-made strategy that has been backtested and customized to suit their needs, enabling them to maximize their ROI while minimizing their risk exposure. So why wait? Visit Algobulls today and start making informed investment decisions!
