There are many investment plan available in market which shows you how much you have to invest and how much you can get, but they show it in form of cash flow (numbers ) and not in percentage. 

Because they know investor can be easily fooled with numbers and investor don’t know time value of money. 

And because investor don’t know calculations mostly invest in investments which make them poor considering that they are becoming RICH.

This is really painful for me as I could calculate and show them how they are being fooled by numbers. 

Like example : 

Pay 10,00,000 for 12 years, get 6,50,000 from end of 5 the year for next 50 years and get 11 crores after that.

How this plan is? 

Most of investors will say a great plan but do you know what is interest rate of this investment? guess ?

It is just 5.38% per year, Means you becoming poor by investing in this so called making you RICH plan. Now by investing in such plan you are fooled.

Why you become poor?

Because by investing same amount even at 10% returns your calculations would be (Getting returns of 10% on long term is easily possible with right strategy)

Invest 10,00,000 per year for 12 years, get 10,00,000 per year for next 50 years from end of 5th year and get 13,00,00,000 at end 

So my request to all of you to calculate the cash flow returns (IRR) before investing in any such investments.

Here is step by step process how you can calculate it.

Calculating the Internal Rate of Return (IRR) in Excel is a straightforward process. Here’s a step-by-step guide to help you understand how to do it:

Step-by-Step Process for Calculating IRR in Excel

1. Prepare Your Cash Flow Data

Make sure you have a list of cash flows in a column (for example, in Column A), with the initial investment (usually a negative number) followed by the cash inflows for each period.

In simple way what goes from your pocket (Even investment) it’s a negative cash flow and what comes to you is positive cash flow.

For eg consider you invested 10000 and get Rs. 30000 from end of year with growth of 10000 every year for next 4 years.

The same can be put in excel like shown

Year

Cash Flow

0   -100,000 (Invested)

1   30,000 (returns)

2   40,000 (returns)

3   50,000 (returns)

4   60,000 (returns)

2. Use the IRR Function in Excel

Click on the cell where you want the IRR to be displayed (Normally the next cell).

Type the following formula:

=IRR(A2:A6), Just typing =IRR the formula will appear. A2:A6: This refers to the range of cells containing your cash flows (make sure you adjust the range to match your data). The formula will return the IRR as a percentage.

3. Understand the Result

The result will be the IRR as a decimal number (e.g., 0.25 or 25%). You can format this result as a percentage if needed.

For example, if Excel returns 0.25, that means the IRR is 25%.

4. Optional: Adjust the Guess (If Necessary)

Excel uses an iterative process to find the IRR, and sometimes it may not converge correctly. You can provide an optional guess for the IRR.

The syntax would look like this:

=IRR(A2:A6, 0.1) The second argument (0.1 or 10%) is the initial guess (the starting point for Excel’s calculation).

If Excel has trouble calculating the IRR, adjusting the guess might help it find the correct value.

5. Verify and Interpret

After calculating, ensure the IRR matches expectations based on inflation beating returns for long term investments and better than FD returns in short term investments.

If the IRR is greater than your required rate of return, the investment may be considered a good one. If it’s lower, it may not meet your desired criteria.

I am sure you can save lacs of rupees from losing and being fooled by product sellers. 

Please do share your experience with us