What is ROI?
Return on Investment (ROI) measures how much profit an investment produced relative to what it cost. It is the universal yardstick for comparing a new machine, a marketing campaign, a shop renovation, a mutual fund, a plot of land or a stake in a friend's business. Because raw ROI ignores time, this calculator also gives the annualised return (CAGR), which is what you should actually use to compare options of different durations.
Formulas
- Net Gain = Total Received (sale value + income earned) − Total Cost (investment + fees + taxes)
- ROI % = Net Gain ÷ Total Cost × 100
- CAGR = (Total Received ÷ Total Cost)1 ÷ years − 1
- Doubling time = ln 2 ÷ ln (1 + CAGR)
Worked example
You invested ₹5,00,000 in a commercial shop in April 2023 and sold it for ₹7,25,000 three years later. Net gain = ₹2,25,000, ROI = 45%. Annualised, that is (7,25,000 ÷ 5,00,000)1/3 − 1 = 13.19% CAGR. If the shop also earned ₹60,000 rent over the period, add it to the amount received: ROI becomes 57% and CAGR 16.2%. Compare that with a bank FD at 7% and you can see the premium you earned for taking the risk.
ROI vs CAGR
A 45% return sounds better than 30% — until you learn the 45% took 5 years and the 30% took 2. CAGR converts both into a yearly rate (7.7% vs 14%) so the comparison is fair. Always quote CAGR when the holding period exceeds one year.
Include all costs
- Brokerage, stamp duty, registration, GST on services
- Capital gains tax (LTCG 12.5% on most assets held over the threshold, STCG 20% on equity)
- Maintenance and holding costs for property
- Opportunity cost — what the money would have earned in a safe FD
Business uses
Use ROI to evaluate equipment purchases (cost vs extra annual profit), marketing spend (campaign cost vs incremental gross profit), training, and software subscriptions. Many Indian SMEs set a hurdle rate — for example 18% — and approve only projects with a projected CAGR above it. The growth table in the results shows how your money would have compounded year by year at the computed CAGR.
Frequently Asked Questions
What is the difference between ROI and CAGR?
ROI is the total percentage return over the whole period. CAGR is the equivalent yearly compound rate. For periods longer than a year CAGR is the right metric for comparison.
Should I include rent or dividends in ROI?
Yes. Add all income received during the holding period to the amount received back — that is total return. Excluding it understates the investment.
Is ROI calculated before or after tax?
Either, but be consistent. For a true picture enter capital-gains tax and other charges under "additional costs" to get post-tax ROI.
What is a good ROI for a business in India?
Most small businesses target 15–25% annual return on capital employed, comfortably above FD rates (6.5–7.5%) and inflation (5–6%).
Disclaimer: This tool is for general information and estimation only. Tax rates and rules change — verify with official sources or a professional before acting. Read full disclaimer.