calculate mutual fund returns

How to calculate mutual fund return?

What is a mutual fund? 

A mutual fund is an investment program that is expertly managed by Asset Management Companies (AMC), which act as middlemen for ordinary investors.

The AMC collects funds from numerous individuals and invests them in bonds, money market instruments, equity shares, and other securities.

According to the amount invested in the fund, a certain number of units are allocated to each investor in turn. In proportion to his investment in the fund, the investor shares the fund’s gains, losses, income, and expenses.  

The money of the investor will be managed by the fund manager in accordance with the scheme’s stated investment goals. Capital growth is his objective.

The fund manager’s mission is to meet the investment objectives of the mutual fund scheme by the wise selection of financial instruments, which can result in capital growth or dependable income.  

For instance, an equity mutual fund will invest in equities so that investors can benefit from long-term capital growth. The debt fund will invest in government assets to earn a larger return based on changes in interest rates as well as fixed income securities to provide investors with a steady income.

To provide a higher return on investment and safeguard the portfolio during a downturn in the stock market, the balanced fund will invest in a combination of equity and bonds/fixed income.

What is a mutual fund calculator? 

You may determine the returns from mutual fund investments using the mutual fund calculator, which is a simulation. If you make an investment in a lump sum or even via a SIP, you can figure out its maturity value.  

Even before you invest the money, a mutual fund calculator is a simple-to-use tool that enables you to obtain a sense of the maturity value of the mutual fund investment.

Given that you already know how much money you will receive upon maturity, it enables you to plan your spending and meet your financial objectives.

To calculate the maturity amount for an estimated rate of return, input the SIP amount, duration, and frequency.

Read more: How does the Step-Up-SIP calculator work?

How to calculate mutual fund returns?

For instance, you made a one-time investment of 1 lakh rupees in a mutual fund program for 10 years. The rate of return on the investment, according to your calculation, will be 8% annually. The following formula can be used to determine the investment’s future value: 

Future Value = Present Value (1 + r/100)^n 

Present Value (PV) = Rs 1,00,000 

r = Estimated rate of return of 8% = 8/100 = 0.08 

n = Duration of the investment which is 10 years

At maturity or after 10 years, you must determine the Future Value (FV) of the mutual fund investment. 

FV = 1,00,000 (1+8/100)^10 

FV = Rs 2,15,892.5. 

Hence, at an estimated return of 8%, the future value of the mutual fund investment after 10 years is Rs 2,15,892.5. 

calculate mutual fund returns
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SIP investment 

The mutual fund calculator can also be used to determine the maturity value of SIP investment. 

Use the formula: 

FV = P [(1+i)^n-1]*(1+i)/i 

FV = Future value or the amount you get at maturity. 

P = Amount you invest through SIP 

i = Compounded rate of return 

n= Investment duration in months 

r = Expected rate of return 

For instance, you might use a SIP to invest Rs 1,000 each month in a mutual fund scheme. The investment has a 10-year term and an expected annual return rate of 8%.  

You have I = r/100/12 = 8/100/12 = 0.006667. (You must multiply the rate of return by 12 to get the monthly amount.) Additionally, you have n = 120 months or 10 years. 

FV = 1,000 [(1+0.006667)^120 – 1] * (1+ 0.006667)/0.006667 

FV = Rs 1,84,170. 

So, at an estimated rate of return of 8%, the future value of a SIP investment of Rs 1,000 each month for 10 years is Rs 1,84,170. 

Read more: How does the SIP calculator work?

Nature of investment (SIP/Lumpsum) 

Money can be invested in mutual funds in two different ways. You have the option of making a lump-sum investment or a SIP. 

Lump-sum investment:  

You are allowed to invest a substantial amount of your available funds in the mutual fund plan of your choice. The profit from the sale of an asset or an inheritance can also be invested.

The risk is increased when investing a lump sum, though. It is therefore always advised to use the SIP method. 

Systematic investment plan (SIP):  

In a Systematic Investment Plan, you tell the bank to take a set amount each month out of your savings account and invest it in a mutual fund plan.

You won’t have to worry about waiting until the ideal moment to enter the market because you can buy units continuously with this method. Additionally, you can profit from rupee cost averaging and take advantage of compounding.

Consult an expert advisor to get the right plan for you 

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