Present Value Interest Factor of Annuity, i.e., PVIFA, is an element used to estimate the current value of a sequence of the annuity payments. To put it another way, PVIFA is a number that represents the present value of the payment series.
The commencing payment earns interest at a specific rate (r) above a series of periods for the payments (n). This formula is used to calculate the value of the annuity at present. When you know the PVIFA factor, the annuity's present value can be calculated by multiplying the periodic payment amounts.
Peaceful Post-Retirement Life
Tax Free Regular Income
Wealth Generation to beat Inflation
Invest ₹6,000/month & Get Tax Free Monthly Pension of ₹60,000
Get the best˜ returns & make the most of your golden years
PVIFA Formula is used to calculate the disbursement's present value from the annuity you will receive on a particular date in the future.
The present value interest factor is bottomed upon the prime financial idea of the time value of money. The concept means that today's value of money is more profitable than the same amount in the future. And the reason behind this is that money can grow its worth when a given particular period of time. As long as money can make interest, any sum that is received sooner is worthful as it can be reinvested to earn interest.
The present value interest factor is more often utilized in studying the annuities. Present value factor interest of annuity (PVIFA) helps decide whether to accept the full payment today or opt for the annuity payments on a particular date in the future. Using the evaluated sum, you can analyze the worth of the entire payments and the overall payments from annuity and decide henceforth.
Another critical point is that the present value interest factor can be calculated only when the annuity payments are for a determined amount over a predefined period. The present value interest factor of annuity is used to estimate the current value of a sequence of annuities in the future.
People Also Read: Best Retirement Plan
The discount rate is used to calculate the present value interest factor of annuity in terms of the expected return rate for the payments in the future. It can be adjusted based on the risk involved due to the time period of the payments of the sum and the utilization of the investment ratio. When the interest rate is higher, the overall present value of the annuities in the calculation will be lower. This fluctuation happens as the worth of one dollar at present is decreased when more returns are expected in the near future.
When the annuity payments are due during the annuity's commencement, then the sum to be paid is called due in the annuity. It is simple to estimate the present value interest factor of annuity in due. Consider the value from the PVIFA formula, and it is multiplied with (1+r), and r is the rate of discount or rate of interest.
Maximize your investments with our SIP Calculator.
The table of PVIFA is used to find the value of the present value interest factor of annuity instantly using the most typical values of r and n. The PVIFA table is mainly used to compare and analyze the various scenarios provided with the variable values for r and n. The table consists of rows and columns, with the first row representing the rate of interest and the early column representing the measure of time.
The cell that is equating the particular row and a particular column represent the present value factor according to the PVIFA table. The obtained value is multiplied with the sum of the continual payment, i.e., the payment of annuity in the dollar. By following this procedure, you can attain the value of the present worth of your future shares using the PVIFA formula. Another point about using these tables is that the values calculated are roundabout values that lack precision. Here is an example for the table of the present value interest factor of the annuity will look like,
|
Period |
Rate 1% |
Rate 2% |
Rate 3% |
Rate 4% |
Rate 5% |
|
1 |
0.9905 |
0.9802 |
0.9707 |
0.9613 |
0.9521 |
|
2 |
1.9707 |
1.9418 |
1.9134 |
1.8863 |
1.8561 |
|
3 |
2.9412 |
2.8837 |
2.8288 |
2.7753 |
2.7233 |
|
4 |
3.9022 |
3.8079 |
3.7173 |
3.6295 |
3.5461 |
|
5 |
4.8532 |
4.7137 |
4.5795 |
4.4517 |
4.3294 |
|
6 |
5.7956 |
5.6017 |
5.4174 |
5.2423 |
5.0759 |
|
7 |
6.7284 |
6.4723 |
6.2301 |
6.0022 |
5.7861 |
|
8 |
7.6519 |
7.3257 |
7.0195 |
6.7329 |
6.4637 |
|
9 |
8.5662 |
8.1624 |
7.7863 |
7.4355 |
7.1073 |
|
10 |
9.4715 |
8.9828 |
8.5305 |
8.1107 |
7.7219 |
PVIFA Formula example:
Consider an example when a person is investing in an annuity with an interest rate of 2% per year. He receives a total of 9 annual payments. The present value interest factor of the annuity can be calculated from the PVIFA formula,
PVIFA = {1- (1+r)-n}/r
Hence the value will be,
PVIFA = {1- (1+2)-9}/2
= 8.1
The value obtained infers that he will receive an amount of Rs. 8.1 as the current value for every one rupee. Now he needs to find the current value based on his sum. For instance, let's assume that he receives a payment of Rs.1500 a year, then the present value interest factor for that particular annuity will be Rs. 12150.
This is how the present value interest factor of annuity is calculated using the PVIFA formula.
Know More: Types of Annuity | Annuity Plans
˜Top 5 plans based on annualized premium, for bookings made in the first 6 months of FY 24-25. Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
*All savings are provided by the insurer as per the IRDAI approved insurance
plan.
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
+Returns Since Inception of LIC Growth Fund
¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.
++Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.
Tata AIA
Axis Max Life
Bajaj Allianz
SBI Life
HDFC Life
ICICI Prudential
Bharti AXA Life
Edelweiss Life
Kotak Life
Future Generali
PNB MetLife
Aditya Birla Sun Life
Aviva
Ageas Federal
Bandhan Life
Canara HSBC
IndiaFirst
Pramerica Life
Reliance Life
Sahara Life
Shriram Life
Star Union
19 Mar 2025
The Indian government is actively exploring the implementation
17 Feb 2025
The HDFC Life Group Unit Linked Pension Plan is a retirement
17 Feb 2025
In today's uncertain economic climate, a reliable income streamInsurance
Calculators
Payment Methods
Secured With
Follow us on
