Inflation
The rate at which the general price of goods and services increases over time. It reduces the value of money. ₹100 today will buy less next year. It is essentially a tax on your savings that you don't see on a bill, but you feel in your wallet.
Purchasing Power
The quantity of goods or services that one unit of money can buy. Inflation erodes purchasing power. If inflation is 6%, your purchasing power drops by roughly 6% every year unless your income grows at the same rate or higher.
Real Rate of Return
The return on an investment after adjusting for inflation. It represents the actual increase in your wealth. Formula: ((1 + Nominal Rate) / (1 + Inflation Rate)) - 1. If your bank gives 4% and inflation is 6%, your real return is negative (-2%).
Nominal Value
The face value of money in the future, without adjusting for inflation. This is the "big number" you see in standard calculators. It tells you the amount of currency you will have, but not what it can buy.
Present Value (PV)
The current worth of a future sum of money given a specified rate of return (or inflation). This calculator shows the PV of your maturity amount, effectively translating future money into today's language.
Cost of Living
The amount of money needed to sustain a certain standard of living, including basic expenses like housing, food, taxes, and healthcare. This cost rises every year due to inflation, necessitating a larger retirement corpus.
Time Value of Money
The concept that money available at the present time is worth more than the identical sum in the future due to its potential earning capacity. This core principle drives all investment planning and underscores the importance of starting early.
Corpus
The total amount of money accumulated at the end of an investment period. Your target corpus must be large enough to generate inflation-adjusted income for your post-retirement years.
Discounting
The process of determining the present value of a payment or a stream of payments that is to be received in the future. It is the reverse of compounding.