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A Complete Guide On Mutual Fund Calculator

What is a Mutual Fund Calculator?

A Mutual fund calculator is an online tool that helps investors calculate their returns and the future value of an investment based on a certain investment strategy. Since mutual fund investors should ideally take a goal-oriented approach for their investments, a mutual fund calculator in India can help them understand how far they’ll achieve their goals based on the planned amount of investment, time horizon, and rate of return.

Also Read: Mutual Funds vs Stock Investment – Which is Better Option?

Mutual Fund Calculation Formula

To calculate mutual fund returns manually, you need to know the mutual fund return calculation formula. It’s always much easier (and faster) to use the ET Money mutual fund returns calculator. This is particularly true when you’re trying to compare returns from your mutual fund investment generated using either a lump sum or SIP strategy.

Even if you choose to use the Mutual Fund return calculator online, it’s helpful to know the formula that was used to calculate the returns on mutual funds that you can receive from your investments. Following are the mutual fund calculation formulas. You shall notice that the formulae for both modes of investment are different. Wonder why? Read on.

Lumpsum Investment 

SIP Investment 

M = P (1 + r/100)n

M = A [ (1 + i)n – 1] x (1 + i)/i

Where:

M = Maturity amount

P = Principal amount

r = Estimated rate of return

n = Holding period (in years)

Where:

M = Maturity amount

A = SIP contribution per period

i = Rate of return

n = Holding period (in months)


Note: For daily/weekly SIPs, adjust i and n accordingly.

 

You should know two things about both formulas.

First, the formula used in the lump sum formula is CAGR (compound annual growth rate) while the one used in the SIP formula is XIRR (Extended Internal Rate of Return). The reason is that CAGR works only for calculating returns on a point-to-point basis. When there are multiple cash flows (like in the case of SIP), you need to use XIRR because the returns for each cash flow will differ. XIRR helps you calculate a single return per cent for all cash flows and is, therefore, relevant to SIPs. If you are keen to learn more about this, click on XIRR and CAGR to know more.

It’s also worth noting that it is based on the scheme you choose and whether you choose a direct or regular plan. The fund house will deduct their commission from your returns when you invest through the regular mode (i.e., through a broker, advisor, or distributor). Since a direct plan doesn’t involve an intermediary, you don’t pay any commission, which reduces the expense ratio and translates to relatively higher returns. Preferably, you’d want to go with a direct plan when choosing mutual fund schemes in India because you’ll end up with relatively higher returns.

For instance, let’s assume that the difference in the expense ratio between the direct and regular plan of a scheme is 0.75%. Following are the returns and the investment value calculated using the ET Money mutual fund calculator for direct vs regular plans:

 

Direct

Regular 

Inputs 

Investment = ₹6 lakh

Holding period = 10 years

Investment = ₹6 lakh

Holding Period = 10 years

Expected return before expense ratio (p.a.) [A]

13%

13%

Expense ratio [B]

1%

1.75%

Expected return after expense ratio (p.a.) [A – B]

12%

11.25%

Total returns (based on expected returns after expense ratio)

₹12.64 Lakh 

₹11.42 Lakh 

Maturity value

₹18.64 Lakh 

₹17.42 Lakh

 

Note that by simply choosing to invest in a direct plan (i.e., without taking any additional risk), you’re able to increase your returns substantially. You can invest in a direct plan online with just a couple of steps through the ET Money website.

Also Read: 5 Investment Plan For Your Kids That You Must Know

How Does a Mutual Fund Calculator Help You?

mutual funds calculator

India’s mutual fund industry grew over 2x between 2016-2021. The country is taking a liking to how they can gain exposure to a diverse portfolio created by an expert. Mutual funds help investors streamline their investment efforts and even facilitate consistency and discipline through SIP.

Mutual funds explicitly caution the investors, “Past performance doesn’t guarantee future returns.” Investors should, therefore, focus on how the fund may perform in the future. This is where a mutual fund calculator can come in handy.

A mutual fund calculator helps you assess the impact of a given variable (i.e., the investment amount, period of investment, and the rate of return) on your total gains and the investment value. For instance, consider that you’re investing with a goal to purchase a home. You input the data and notice your investment value falls a little short of the value of the home you aim to purchase. You change either of the three variables based on your preference to see how you can adjust your investment strategy to achieve your target.

Think of a mutual fund calculator as your music system. The investment amount, rate of return, and period of investment are like the bass and treble knobs. You use them to optimize the music system’s output. Similarly, a mutual fund calculator allows adjusting the three variables that go into it, which can help you understand what combination of investment, rate of return, and holding period can help you achieve your targets.

You can also calculate mutual fund returns for both SIP and lump sum modes to see how they compare using the mutual fund returns calculator. For instance, investing ₹5 lakh as a lump sum or investing the same amount over three years can generate different returns. Manually calculating them can consume a lot of time, while mutual fund return calculation with a calculator typically takes less than 30 seconds.

Also Read: Want To Invest In SIP? Here Is a Complete Guide On SIP And Investment Calculator

Conclusion:

This is how the mutual fund calculator solves each query related to numbers that always make a lot of confusion in investors’ mind. 

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