Return on Investment (ROI) is the most fundamental metric in finance — it tells you how much you've gained or lost on an investment relative to its cost. Whether you are evaluating stocks, real estate, a business, or a fixed deposit, ROI enables fair comparison on equal footing. Our ROI calculator also computes CAGR (Compound Annual Growth Rate) for investments held over multiple years.
ROI Formula and Calculation
ROI = [(Final Value − Initial Investment) ÷ Initial Investment] × 100. For example, if you invested ₹1,00,000 and it grew to ₹1,50,000, your ROI is 50%. However, simple ROI doesn't account for time. That's where CAGR comes in: CAGR = [(Final Value / Initial Value)^(1/years) − 1] × 100. A 50% ROI over 5 years has a CAGR of only 8.45% — very different from a one-year 50% return.
Limitations of ROI as a Metric
ROI does not account for: time value of money (₹1 lakh today is worth more than ₹1 lakh five years from now), risk (two investments with the same ROI can have very different risk profiles), or inflation (a 7% ROI with 6% inflation leaves only 1% real return). Always use ROI alongside CAGR, inflation-adjusted returns, and risk-adjusted metrics.
ROI for Real Estate in India
Real estate ROI includes both price appreciation and rental yield. Rental yields in India range from 2–4% in metros to 4–6% in Tier-2 cities. Capital appreciation has been 6–15% per year in growing corridors. When calculating real estate ROI, include stamp duty, registration, maintenance, property tax, and potential vacancy periods as costs.
Frequently Asked Questions
What is a good ROI for investments in India?
A good ROI beats inflation and your cost of capital. With India's long-term CPI inflation around 5–6%, an investment should ideally return 10%+ to create real wealth. Equity markets have historically returned 12–15% CAGR over long periods.
How is CAGR different from absolute returns?
Absolute return is the total percentage gain over any period. CAGR annualises this to a per-year rate for fair comparison across different time periods. CAGR is the more useful metric for multi-year investment performance.
Can ROI be negative?
Yes. A negative ROI means your investment lost value — the final value is less than the initial investment. This includes stocks of loss-making companies, failed business ventures, or real estate bought at a peak and sold at a trough.
What is IRR vs ROI?
IRR (Internal Rate of Return) is the discount rate that makes the Net Present Value of all cash flows equal to zero. It is more useful than ROI for projects with irregular cash flows or multiple investment periods. ROI is simpler and better for single-period comparisons.