TIME VALUE OF MONEY! Your money evaporates everyday.

Time value of money is a concept in investing where it is assumed that investors are always willing to receive money today rather than any time later since investors can always receive returns in future on money earned today on a risk free rate. In simple language it says that a rupee earned today will be more valuable than a rupee earned tomorrow by Risk Free Rate. Let's understand is with a simple example.

Ex: Lets say Max is receiving Rs.10,000/- today and Maya will receive the same after a year. Now since Max has received money a year earlier he has an opportunity to gain 6.9% return by investing in a government bond. Now exactly after a year when Maya will receive her Rs.10,000/- the value of Max's investment will be worth Rs.10,690/-. In other word we can say that receiving Rs.10,000/- a year earlier in India can be worth Rs.690/- more at a risk free rate of 6.9%.

As an investor one must always understand the concept of time value s the general mindset of any investor should be to generate maximum returns in minimum time frame.

Investors can always use formula or table to figure out time value of money.

The link to both formula and table is given below.

Time Value of Money