December 9, 2022

All You Need to Know About Mutual Fund Investment Calculator

A good financial plan and regular investments in different financial tools with varying levels of risk can make your future financially secure and provide ample monetary freedom. One such tool which can provide excellent returns to you is an investment in a mutual fund (MF). Mutual fund products are available at various risk levels, and you must choose carefully after considering your appetite for profits and risks. Moreover, many financial companies offer numerous mutual fund products, and you can use a mutual fund calculator to know the possible returns from them before investing.

 

What is a Mutual Fund?

A mutual fund is an investment tool or scheme offered by an Asset Management Company (AMC) through which an investor can put their money on equities, securities, bonds, and more such investment instruments. An AMC puts together a corpus of investment amounts from multiple investors and appoints a fund manager to invest everything in different instruments. There are several mutual fund schemes you can choose from an AMC, and their objective depends on risk factors and return generation goals. Before investing, you can use the mutual fund investment calculator available with each AMC.

 

What is a Mutual Fund Calculator?

 

This calculator is an online tool available with every AMC on their website, and you can use it to know the returns you can get by investing in different mutual fund products. First, you can select various scenarios, like the expected rate of return or the timeline for which you want to invest. Then, it will calculate the possible returns you can expect from the investment. There are two methods in which you can invest in a mutual fund: a one-time lump sum investment or a regular, systematic investment plan (SIP). The mutual fund return calculator will compute the expected returns accordingly.

 

Workings of a Mutual Fund Calculator

 

1) One-Time Lump Sum Investment:

When you have a significant amount of money to invest, you can put everything at one go into a mutual fund scheme under this one-time lump sum investment process. The formula that is applicable for this type of investment is as follows:

 

FV = PV (1 + r / 100) ^ n

 

Where,

FV = Future Value

PV = Present Value

r = Rate of Return that you estimate

n = Time duration of the investment in years

 

An example of this MF calculator formula is that you want to invest an amount of INR 3 lakh for a period of 5 years, and you are expecting a return rate of 10% on your investment.

 

Thus,

PV = 3,00,000

r = 10%

n = 5

FV = 3,00,000 (1 + 10 / 100) ^ 10

FV = INR 4,83,153

 

Therefore, the return you can expect by investing one lump sum amount of INR 3 lakhs at a return rate of 10% for five years is INR 4,83,153.

 

2) Regular Systematic Investment Plan (SIP):

You can invest in mutual fund products through a SIP in which you must regularly invest a small amount every fortnightly, monthly, or quarterly. The MF return calculator uses the following formula to calculate the possible returns:

 

FV = P [ (1 + i) ^ n – 1] * (1 + i) / i

 

Where,

FV = Future Value which is also the maturity amount

P = Principal systematic investment amount

i = Compounded Return Rate

n = Duration of investment in months

r = Rate of Return that you estimate

 

For example, you want to invest INR 2,000 every month for five years at a return rate of 10% for the investment.

 

Thus,

P = 2,000

n = 5 * 12 = 60

r = 10%

 

Now understand how to arrive at the value of “i” in the SIP formula for MF Calculator:

i = r / 100 / 12 = 10 / 100 / 12 = 0.00833

 

FV = 2,000 [ (1 + 0.00833) ^ 60 – 1] * ( 1 + 0.00833) / 0.00833

FV = 1,54,874

 

Therefore, the maturity amount you get by investing INR 2,000 monthly for five years at a return rate of 10% is INR 1,54,874.

 

Benefits of an Online Mutual Fund Calculator

The calculators that are available online on the different mutual fund house’s websites are very useful, and the benefits they provide are as follows:

  • It is very easy to use the mutual fund return calculator, which is very cumbersome otherwise to do the calculation manually.
  • The benefit of using this calculator is that it saves you much of your valuable time by quickly computing the returns in a matter of a few seconds.
  • It is even very convenient and easy to access the tool as it is available online, letting you use it from any location and any time of the day.
  • You can adjust the different investment scenarios through this calculator, which helps you more clearly determine the financial planning goals.
  • The simplicity of using this calculator is another benefit you find while using it for computing your return on investments.
  • The MF return calculator helps you define your long-term and short-term financial objectives and decide on the investment amounts you need to put in the mutual funds to meet them.
  • Another benefit of this tool is that it helps you make informed choices of investments to secure your financial future with confidence.
  • The accuracy of determining the returns on a long-term investment available with this online calculator is also something you will benefit from investing in mutual funds.

 

Conclusion

In India, mutual fund investments have grown at a phenomenal rate, even after having higher risk factors than other investment instruments. However, before you start your investment, it is vital that you do your due diligence and make full use of the mutual fund calculator available with every AMC or mutual fund house online. It will make your life easy and even help you make the right investment decisions for a brighter, financially secure future. Ensure that you compare all available mutual fund products or schemes by using this calculator to your advantage.

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