Mutual Fund Calculator

Mutual funds are a rather popular investment option. The Assets Under Management or AUM of the Indian mutual fund industry grew from ₹8.11 trillion as of 30 June 2013 to the ₹44.39 trillion recorded on 30 June 2023. That’s a 5-fold increase in 10 years. If you’re one of the many mutual fund investors out there or are considering investing in one, a mutual fund calculator can be of great help. Read on to learn about what it does and how to use it.

All you need to know about mutual funds

A mutual fund is a professionally managed investment scheme run by an Asset Management Company (AMC). It enables investors to pool their money and collectively invest it in stocks, bonds, money market instruments, and other types of securities. The fact that they are managed by professionals makes them rather popular.

Mutual fund investors are assigned units of the fund in proportion to the investment. The gains, losses, income, and expenses the investor—also called a unit holder—thus shares is according to their investment.

There are numerous mutual fund schemes available in the market. Each scheme will have its own scope and agenda and will reflect a specific investment ideology. The fund manager is supposed to make investments in accordance with the scope, agenda, and ideology. But the ultimate goal of the fund manager is a judicious selection of financial instruments to achieve the investment objectives.

What is a mutual fund calculator?

A mutual fund calculator is an online tool to help mutual fund investors estimate the gains and future value of their investments. Since investors of these funds should ideally take a goal-oriented approach, a calculator of this kind can help.

Mutual fund returns are, of course, subject to market risk and can fluctuate over time. But, it is possible to have a rough estimate using an online mutual fund return calculator.

The Lemonn mutual fund returns calculator is designed to make this estimation of returns easy. All you need to feed into the calculator is: your investment amount (monthly SIP or lumpsum), time horizon, and the expected rate of interest.

Mutual fund calculation formula

Mutual fund investments can be made in two ways: as one-time investments (also known as lumpsum investments), and with a Systematic Investment Plan (SIP). The formula to calculate returns for lumpsum mutual fund investment is slightly different from the one used to calculate returns from SIP investments. You can find both formulas below.

Mutual fund lumpsum investment return calculation formula

Lumpsum mutual fund investment returns can be calculated using the formula below:

A = P (1 + r) ^ n

In this equation:

A = Value at the end of investment period

P = Lumpsum investment amount 

R = Rate of interest 

N = Investment period in years

Let’s understand how this works with an example. Suppose you invest ₹15,00,000 in a mutual fund scheme for 10 years at an interest rate of 12% per annum. In this case, you can estimate your returns as follows:

A = 15,00,000(1+12)^10

That means the redemption value of your investment would be ₹46,58,772.

Mutual fund SIP investment return calcualtion formula

The formula for SIP-based mutual fund investments is a little different. It looks like this:

A = P × ({[1 + r]^n – 1} / r) × (1 + r)

In this equation:

A = Value at the end of investment period

P = Amount invested at regular intervals

N = Number of payments made

R = Rate of interest

So if you invest ₹1,000 a month in a mutual fund scheme for 10 years (that is, 120 months), and the estimated rate of interest is 8% per year, your returns estimation would look like this:

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

The redemption value would thus be ₹1,84,170.

Note that for the calculation, you must convert the per annum rate of interest into a monthly rate of interest. This may be done as follows:

R = r/100/12 = 8/100/12 = 0.006667

How to use the Lemonn mutual fund returns calculator

The Lemonn mutual fund calculator is easy to use as it only requires some basic inputs from you. The steps below should clarify what these inputs are.

Step 1: Choose between lumpsum and SIP investment.

Remember, the formula for calculating returns is different for lumpsum and SIP investments. So make sure to select the correct option.

Step 2: Enter the amount.

You will have to enter your desired investment amount in INR to get reliable results.

Step 3: Specify the investment duration.

Enter the number of years you plan to stay invested. Compounding depends on the duration of your investment, so this is an important one. Also, don’t forget that the investment duration should be specified in years—not months.

Step 4: State the expected rate of interest.
Your investment is likely to grow at the rate of interest. Therefore, you should be very careful when entering this number.

How can a mutual fund calculator help you?

A mutual fund calculator, like the one above, helps make financial decisions easy. This is because it gives you visibility of your investment returns several months or years down the line. In that sense, equips you to create a goal-oriented financial plan.

Since such calculators make finance accessible for all, you don’t need to spend time becoming a subject expert before you invest in mutual funds.

Advantages of using a mutual fund calculator

Some of the benefits of using a mutual fund calculator are as follows.

• Accurate calculations

A mutual fund calculator will help you estimate your returns accurately. Since it is an automated tool, it minimizes human error.

• Helps with financial planning

Mutual fund schemes come with different rates of return and underlying assets. A fund calculator thus helps because it can be used to compare various schemes. In this way, it facilitates better financial planning. 

• Online access

Mutual fund return calculators like the one above can be easily accessed from any corner of the world. Since all you need is internet connectivity, it is always just a few clicks away.

• Time-saving

Calculating estimated returns for your mutual fund investment can be very time-consuming. The calculator above will save you time while still giving you accurate results.

How to invest in mutual funds

If the math seems to be working for you, and you’re wondering how to invest in mutual funds, help isn’t far. Because here is a breakdown of the two ways in which you can start investing in a mutual fund scheme.

• Direct plans

Option one is to approach an AMC and invest in the direct plan of your choice. These plans have a low expense ratio because they don’t charge a distributor commission. Because of this, they let you earn a better rate of return over the long term.

• MF distributors

The second option is to contact a registered mutual fund distributor. The distributor will help you understand the various schemes on offer and assist you with the requisite documentation. You will be investing in a regular plan, which includes a distributor’s commission.

• Online

In addition to the options discussed above, there is a third option. In this, several third-party portals available online let you invest in a variety of mutual funds for a nominal fee.

It is important to remember that mutual fund investments are subject to market risk. Therefore, before you start investing, gather ample information about the schemes you are interested in and assess the risk factors attached to each of them.

Nature of investment 

Mutual fund investments can be divided into two types. You can choose between a lumpsum investment or an SIP plan. Both have their benefits.

1. Lumpsum investment

Lumpsum investments are when you invest a sizable amount at one go in a mutual fund scheme. This is suitable if you have access to a large amount of money and can afford to set it aside for a while.

2. Systematic Investment Plan (SIP)

SIPs involve investing a fixed amount of money in the scheme every month. With them by your side, you can buy units on an ongoing basis without having to worry about the right time to enter the market. You also benefit from rupee cost averaging and the power of compounding. SIP investments are great for people who receive a fixed income every month and do not have access to large sums. SIP inculcates the habit of savings and promotes discipline.

Conclusion

To start your mutual fund investment journey today, begin by evaluating multiple mutual fund schemes. The scheme, of course, must suit your investment needs, but the mutual fund returns calculator above can also help you make the decision.