Time Value of Money (TVM) is a fundamental concept in finance that explains how the value of money changes over time. In simple terms, a rupee today is worth more than a rupee in the future because of its potential to earn returns. This concept forms the foundation for making smart investment, savings, and borrowing decisions.

At its core, TVM is based on the principle that money can grow through investments or interest over time. For example, if you invest _1,000 today at an annual interest rate of 8%, it will grow to _1,080 in a year. This growth reflects the future value of money. Conversely, when calculating the present value, investors determine how much a future sum is worth today by discounting it using an interest rate or return expectation.

TVM plays a crucial role in various financial decisions such as loan repayments, investment planning, retirement savings, and valuation of assets. It helps individuals and businesses assess whether to invest now or later, choose between different financial options, and plan long-term wealth goals more effectively.

Key components that influence the Time Value of Money include the interest rate, time period, number of compounding periods, and the principal amount. Understanding how these factors interact enables investors to evaluate the true worth of their investments or liabilities over time.

In summary, the Time Value of Money emphasizes that money’s value isn’t static—it evolves with time, interest, and opportunity. By mastering TVM, investors can make informed financial decisions aligned with their risk tolerance and financial objectives, ensuring smarter and more strategic wealth management.