Mutual funds have become a popular investment alternative because of their affordability and convenience. However, calculating the returns from mutual fund investments is not a cake walk, rather involves complex calculations that require expertise. Whether you are a seasoned investor or just starting out, understanding the potential return on your investments is crucial. One such tool that simplifies this process is the Mutual Fund Returns Calculator. It provides a quick, easy, and accurate way to calculate the returns on your mutual fund investments be it an SIP or lumpsum investment.
This guide will explain the technical concepts of mutual fund returns including how SIP and lumpsum investment returns are calculated, practical examples and tips to plan your investments using the AssetPlus Mutual Funds Calculator.
What is a Mutual Fund Returns Calculator?
A Mutual Fund Returns Calculator is an online tool that helps investors calculate the expected returns on their mutual fund investments. It considers factors such as the investment amount, the tenure of the investment, and the expected rate of return to calculate the future value of the investment. An online mutual fund return calculator can either be split into two separate tools, SIP Calculator and Lumpsum Calculator, or incorporate both methods into one comprehensive calculator. This helps investors plan their investments better and align them with their financial goals.
Understanding SIP and Lumpsum Investments
When investing in mutual funds, investors can choose between two methods: SIP (Systematic Investment Plan) and lumpsum investments. Both methods have advantages, and the choice depends on the investor's financial goals and risk tolerance.
SIP Investments (Systematic Investment Plan):
A SIP allows you to invest a fixed amount regularly (monthly, quarterly) into a mutual fund. You invest small amounts over time instead of investing a large sum at once. This spreads your investment and reduces the risk of market fluctuations. SIPs are great for disciplined investing and are easy to start with a low amount, making it accessible to everyone.
Benefits of SIP Investments:
Encourages regular savings.
Reduces market timing risks.
Low starting amount (as little as INR 500).
Benefits from compounding.
Flexible-easy to start, stop, or change the amount.
Lumpsum Investments:
A Lumpsum investment is when you invest a large sum of money in one go into a mutual fund or another financial instrument. It’s a one-time investment, and the entire amount gets invested at once. Lumpsum investments can generate good returns if the market is favourable, but they are riskier because they are subject to market conditions at the time of investment.
Benefits of Lumpsum Investments:
Potential for higher returns during favourable market conditions.
Ideal for those with a large sum of money available.
No need for ongoing contributions.
Suitable for long-term goals if invested wisely.
Easier to manage compared to small, frequent investments.
Understanding Mutual Fund Returns
Mutual Fund investment returns are of different types as mentioned below. An online mutual fund returns calculator.
Absolute Returns: Absolute returns represent the total increase or decrease in the value of an investment over a specific period. It indicates the actual gain or loss experienced on a lumpsum investment without considering the time factor or any additional income generated.
Total Returns: Total returns measure an investment's overall gain or loss by factoring in capital appreciation (or depreciation) and any income generated, such as dividends or interest. They offer a comprehensive view of the investment's total profitability.
Annualized Returns: Annualised returns calculate an investment's average annual growth rate over a specified period. Standardising the performance on a yearly basis allows for easy comparison of returns across different investments, even if the investment was held for varying lengths of time.
Rolling Returns: Rolling returns assess an investment's performance over a series of overlapping periods . This method helps evaluate the consistency of an investment's returns by considering multiple periods, such as one year, three years, or five years, often rolling forward month by month or quarter by quarter.
Trailing Returns: Trailing returns reflect an investment's performance over a specific time frame leading up to the present. This approach allows investors to assess how the investment has performed in recent months or years, providing insight into the investment's current trend.
Learn and understand each Type of Mutual Fund Returns in detail here.
Mutual Fund Returns Calculator Formula
The Mutual Fund Returns Calculator primarily works on the principle of compound interest. Both The returns from SIP & Lumpsum investments are calculated differently. Let’s understand them easily by learning the formula and using in a practical example.
Formula for SIP Investment
FV = P x ({[1+r]^n - 1} / r) x (1+r)
Where,
FV = future value earned upon maturity
P = fixed investment through sip
r = compounded interest rate
n = investment duration
Practical Illustration:
Mr. Rohan earns a salary of Rs. 1,00,000 per month. He invests 20% of his salary (i.e, Rs. 20,000) in a Mutual Fund SIP for 10 years at 12% XIRR.
Here is the approximate returns that he would have generated out of his SIPs at the end of 10th year:
Using the SIP Calculator
Using the SIP Calculator Formula:
FV = P x ({[1+r]^n - 1} / r) x (1+r)
Here,
Monthly investment amount (P) = Rs. 20,000
Annual rate of return = 12% = 0.12
Monthly rate of return (r ) = 0.12 / 12 = 0.01
Total number of installments (n) = 10 years * 12 months = 120
Therefore, FV = 20,000 x ({[1+0.01]120 - 1} / 0.01) x (1 + 0.01)
Calculating the formula, we get an amount of Rs. 46,46,787 ~= Rs. 46,47,000. This means with an annual investment of Rs. 2.40 lakhs for 10 years, Rohan is able to amass a wealth of Rs.46 lakhs through the power of compounding.
Formula for Lumpsum Investment
A = P x (1+i)^n
where,
A is the Amount of Return on the Lumpsum investment
P is the principal amount or the investment amount
i is the expected rate of return
n is the number of years the money is invested for
Practical Illustration:
Now say that Rohan received a bonus of Rs. 2,00,000 from a successful project deal and he invests that amount as a lumpsum in a mutual fund scheme with 12% CAGR for 5 years, his returns will be calculated as:
Using the Lumpsum Calculator
Using the Lumpsum Calculator Formula:
FV = P x (1+i)^n
Here,
Principle investment amount (P) = Rs. 2,00,000
Annual rate of return = 12% = 0.12
Total number of installments (n) = 5 years
Therefore, A = 2,00,000 x (1+0.12)^5
Calculating the formula, we get an amount of Rs. 3,52,468 ~= Rs. 3,52,500. This means with a one time lumpsum investment of Rs. 2 lakhs for 5 years, Rohan has accumulated a corpus of Rs.3.52 lakhs through the power of compounding.
This SIP & Lumpsum formula helps calculate the future value of the investments, providing the investor with a clear picture of the potential returns on their investments.
Note to Remember:
The formula used to calculate returns in a lump sum investment is CAGR (Compound Annual Growth Rate), whereas for SIP investments, it’s XIRR (Extended Internal Rate of Return). The reason for this difference is that CAGR applies only to investments with a single cash flow over a fixed period, which is the case in lump sum investments. However, in SIPs, there are multiple cash flows at different intervals. As a result, XIRR is used because it calculates a single return percentage for all those varying cash flows, making it the appropriate method for SIP Return Calculations. You should know two things about both formulas.
If you are keen to learn more about this, click on XIRR and CAGR to know more.
Why Use a Mutual Fund Returns Calculator?
Using a Mutual Fund Returns Calculator has several benefits:
Simplicity
The mutual fund returns calculator is simple to use. Even someone who hasn't used it before can easily navigate and get an idea of their investment growth. All you need to do is input your desired investment amount, the duration of the investment, and the expected rate of return. The calculator then instantly provides an estimate of the future value of your investment.
Time-Saving
Manually calculating mutual fund returns can be complex and time-consuming. The Mutual Fund Returns Calculator is son interactive and simplifies this process, providing the estimated returns instantly.
Financial Planning
The calculator helps investors make informed decisions about their investments. It allows them to adjust various parameters and see how it impacts the future value of their investment. This aids in setting realistic financial goals and planning investments accordingly.
Free to Use
Most online Mutual Fund Returns Calculators are free to use. Investors can use them any number of times without incurring any charges, making them a cost-effective tool for financial planning.
AssetPlus Mutual Fund Returns Calculator
AssetPlus Mutual Fund Returns Calculator is a simple-to-use online tool that can help you calculate the potential returns on your mutual fund investments. Whether you choose to invest via SIP or lumpsum, the calculator can provide an accurate estimate of your returns based on your investment amount, tenure, and expected rate of return.
Using a Mutual Fund Returns Calculator is a straightforward process. Here are the steps:
Enter the Investment Amount: Input the amount that you plan to invest every month or every year
Enter the Tenure of Investment: Enter the number of years you plan to keep investing.
Enter the Expected Rate of Return: Enter the annual return rate that you expect from your mutual fund investment.
Voila.. The calculator works real time and gives you instant results even as you keep modifying your inputs
Features of AssetPlus Mutual Fund Returns Calculator
Ease of Use: The calculator is user-friendly with a simple interface that makes it easy for anyone to use.
Quick and Accurate: The calculator provides quick and accurate results, saving you the time and effort of manual calculations.
Flexible: You can enter different investment amounts, tenures, and return rates to calculate and compare the potential returns from different investment scenarios.
Free: The calculator is free to use, making it a cost-effective tool for financial planning.
Conclusion
Investing in mutual funds can be a smart way to grow your wealth over time. However, it's essential to understand the potential returns on your investments. A Mutual Fund Returns Calculator, like the one offered by AssetPlus is a Best Platform for MFDs in India, can be a valuable tool in your investment journey. It allows you to estimate your returns accurately, helping you make informed investment decisions and plan for a secure financial future.
FAQs
Are mutual fund investments reliable?
Yes, mutual fund investments are generally considered reliable, especially when you invest in well-established funds managed by experienced professionals. However, like all investments, they come with risks, particularly in equity funds where market fluctuations can affect returns. It's important to understand your risk tolerance and choose funds that align with your financial goals. Over the long term, mutual funds have historically provided good returns, but it's essential to stay informed and diversify your investments.
Can there be negative returns?
Does a mutual fund calculator results guarantee accurate future returns?