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Know About The Mutual Fund Calculator

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The Definition Of A Mutual Fund

A mutual fund is defined aa a professionally managed investment fund that combines money from various investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV in Europe ('investment company with variable capital') and open-ended investment company (OEIC) in the UK.

The Meaning Of Mutual Fund Calculator

Well, 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 about The Income Tax Calculator - The Tool That Helps You Calculate Your Tax.  

The ET Money mutual fund returns calculator makes things easier for you because it requires just three inputs: your investment amount (monthly SIP or lumpsum), time horizon, and a rate of return based on your investment strategy.

The Means & Methods To Use ET Money Mutual Fund Returns Calculator?

The ET Money mutual fund calculator is a two-step process that makes mutual fund return calculation a breeze. When you use a mutual fund calculator online, you’re faced with a range of questions. For new investors trying to use any other Mutual Fund returns calculator in India, this can be quite overwhelming. This is why the ET Money calculator has a streamlined design that helps investors with mutual fund return calculation in two easy steps.

Step 1: Choose between a lump sum or SIP calculation from the top-right corner.

Step 2: Enter the amount you wish to invest (or the monthly contribution if you chose SIP), the number of years you intend to hold the investment for (or continue SIP contributions), and the investment strategy.

Choosing the investment strategy on the calculator eliminates the need to estimate a rate of return because the algorithm does it based on the strategy’s risk profile. For instance, aggressive strategies typically deliver higher returns than conservative strategies because they come with greater risk. If you prefer, you also have the option to enter a custom rate by selecting Custom from the drop-down menu.

You’ll now see your investment’s growth in the form of a bar chart over several time frames. On the right, you’ll get an overview of the total investment, total gains, and the future value of your investment.

As you keep changing any variable in the MF return calculator, the chart at the bottom and the overview will change automatically. You’ll also see some of the best mutual funds at the right of the calculator based on your investment strategy. If you happen to be interested in any of those funds, use the “Invest Now” button, and invest in Mutual Funds using the SIP or lump sum investment route in minutes.

The Formula For Mutual Fund Calculation

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? Here is the answer:

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.

 

Know two things about both formulae.

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 percent 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.

You may also like reading Income Tax Verification: The checking of your filed taxes.

It’s also worth noting that the 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.

Mutual Fund Calculator : How Will It Help You?

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 Form 16 – Here Is About Tax Deducted At Source

 

 

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