Find out how much you need to invest today to reach a certain amount in the future.
The exact algebraic inverse of the future value formula.
Present value: Future value ÷ (1 + r)ⁿ
Present value tells you what a sum due in the future is worth right now. The calculator takes a future amount, a discount rate and a number of years, and gives the amount that, invested today at that rate, would grow to exactly the future sum.
It is used whenever money arrives at different times and must be compared fairly. Should you accept ₹10 lakh in five years or ₹7 lakh today? How much should you set aside now for a ₹25 lakh goal twelve years away? What is a promised insurance maturity benefit really worth? Each of these is a present value question.
Businesses use the same idea to value projects and bonds, and courts and insurers use it to value future compensation.
1. Note the future amount FV, the discount rate r% per year and the number of years n.
2. Convert the rate to a decimal: r ÷ 100.
3. Compute the discount factor: 1 ÷ (1 + r ÷ 100)ⁿ.
4. Multiply: PV = FV ÷ (1 + r ÷ 100)ⁿ.
5. Check by growing it back: PV × (1 + r ÷ 100)ⁿ should equal FV.
6. To compare two offers, compute the present value of each at the same rate and pick the larger.
If ₹PV grows at rate r for n years, it becomes PV(1 + r)ⁿ. Setting that equal to the future amount and dividing gives PV = FV ÷ (1 + r)ⁿ. Every year of waiting divides the value by another (1 + r). The logic is that money available today can be invested, so a rupee now is worth more than a rupee later. Present value answers how much more, given what you could otherwise earn. It is exactly the inverse of the future value calculator.
The discount rate is the return you give up by waiting, so it should match your realistic alternative with similar risk. For a guaranteed future payment, a safe rate such as a government bond or bank FD rate is sensible. For an uncertain payment, a higher rate is appropriate to reflect the risk that it may not arrive in full. Using inflation as the rate gives the future sum's value at today's purchasing power. The choice matters a great deal: the same future amount has a noticeably smaller present value at 10% than at 6%.
Because the discount factor is a power, distant amounts shrink sharply. At 10%, ₹1 due in 10 years is worth about 39 paise today, and in 30 years under 6 paise. This is why promises of large sums far in the future, common in some traditional insurance plans, can be worth much less than they sound. It also explains why a goal many years away needs a relatively small amount set aside now, provided that amount really does earn the assumed rate.
Harish wants ₹25,00,000 for his daughter's postgraduate studies in 12 years and wants to know what lump sum invested now at 8% would get him there.
Answer: Present value (worth today) ₹9,92,784
Comparing money due at different dates without discounting any of it.
Using a risky investment's expected return to discount a guaranteed payment, which undervalues it.
Forgetting that the result assumes the money actually earns the discount rate every year.
Using the wrong period, such as months in place of years.
Reading the present value as the total to save when the plan is to invest monthly; a SIP needs a different formula.
Comparing a lump-sum offer today with a larger payment later.
Working out how much to invest now for a future goal.
Judging the real worth of an insurance policy's maturity benefit.
Valuing future rent, royalty or compensation payments.
Why would I need to know present value?
It helps you fairly compare amounts of money due at different times. A future payment is worth less than the same amount in hand today, and present value shows you exactly how much less.