Mutual Fund Calculator

Mutual fund investments in India are on the rise, as the AUM or assets under management recorded a more than five-fold increase in the last 10 years. For perspective, the AUM stood at a whopping ₹54.5 trillion in February 2024. Many prospective mutual fund investors are eager to know how much returns they can hope to earn from investing in mutual funds. Our mutual fund calculator can be of help here as it can help you evaluate multiple schemes by giving you the expected returns from each scheme over a specified period. We will discuss this popular financial product and how the mutual fund calculator can help you if you are planning to invest in mutual funds.

A primer on mutual funds

Mutual funds are professionally managed investment schemes run by asset management companies. Mutual funds pool investors’ money and collectively invest it in assets such as stocks, government bonds, corporate debt, and other instruments. The professional management aspect of mutual funds makes them a popular investment choice. 

A mutual fund scheme quotes its Net Asset Value (NAV). The NAV is the net value of an investment fund’s assets minus its liabilities and expenses, divided by the number of shares outstanding. NAV forms the basis for allotment to investors. A mutual fund investor will be allotted units in proportion to the investment amount.

Two ways of investing in mutual funds

There are two popular ways of investing in mutual funds. 

1. Lumpsum investment

Here, you invest a large amount of money into a mutual fund scheme of your choice. This mode of investment works well for someone who has received a windfall such as a bonus at work, a large inheritance, or maturity proceeds from another financial product. 

2. Systematic Investment Plan (SIP)

SIPs are a mode of regular investment in mutual funds. It involves investing a fixed amount of money at regular intervals in a mutual fund scheme. SIPs bring discipline to the investment process as they automate the investment so that you don’t have to worry about timing the market to make your investment. 

While the two modes mentioned above are broad ways of mutual fund investing, you can opt to invest through direct plans with a lower expense ratio, registered mutual fund distributors, or third-party portals that let you invest in different mutual fund schemes.

Understanding a mutual fund calculator

A mutual fund calculator is an online tool designed to help mutual fund investors estimate the returns from their investments. The calculator will compute the future value of your investment at a given rate of return for the time frame of your choice. 

The formula to calculate mutual fund returns

As discussed above, mutual fund investments can be done in two ways and thus the formulas to estimate the returns for both investment alternatives are different. 

The math behind the lumpsum investment return

A lumpsum investment is typically made once, so the formula to calculate the value of a lumpsum mutual fund investment is different. Returns on your lumpsum one-time investment can be calculated using the formula below:

A = P (1 + r) ^ n

Where:

A = Value at the end of the investment period

P = Lumpsum investment amount 

R = Rate of interest 

N = Investment period in years

Let’s understand how lumpsum investments are valued with an example. 

Mr. Gatsby gets ₹ 10,00,000 from the sale of a property. He decides to invest ₹10,00,000 in a mutual fund scheme for 10 years at an interest rate of 13% per annum. In this case, he can estimate the returns as follows:

A = 10,00,000(1+13)^10

The redemption value of Mr. Gatsby’s investment would be ₹33,94,567. 

Calculating returns from mutual fund SIP investments

SIP investments happen at regular intervals. The formula for SIP-based mutual fund investments is different from the one used for lumpsum investments. The formula below is used to calculate the redemption value of SIP investments: 

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

Where:

• A = Value at the end of the investment period
• P = Amount invested at regular intervals
• N = Number of payments made
• R = Rate of interest

Mr. Gatsby has also just started a ₹10,000 a month SIP in a mutual fund scheme. He plans to continue the SIP for 10 years (120 months). The estimated rate of return of the mutual fund scheme is 12% p.a. Mr. Gatsby can calculate the returns at the end of 10 years using the above formula as follows: 

A = 10,000* [(1+0.010)^120 – 1] /0.010* (1+0.010)

The redemption value would thus be ₹23,23,391. 

Of the redemption value, ₹12,00,000 will be the investment and ₹11,23,391 will be the return on his investment. 

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 = 12/100/12 = 0.010

How to use the CoinSwitch mutual fund returns calculator

The CoinSwitch mutual fund calculator is easy to use as it only requires some basic inputs from you. Follow the steps below to estimate the returns on your mutual fund investments: 

Step 1: Choose your investment type: Lumpsum or SIP

The investment and the calculation implications for lumpsum and SIP options are different. Therefore, you need to choose the right investment type to get an appropriate estimate. 

Step 2: Plug in your investment amount 

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

Step 3: Plug in the time frame of your investment

Enter the number of years you plan to stay invested in the scheme. The compounding period will depend on the duration of your investment. 

Step 4: Enter the expected rate of return

Your investment is likely to grow at the prevailing rate of interest. Therefore, you should be very careful when entering this number.

Mutual fund calculator can help you plan your investment goals

Mutual fund investors generally follow a goal-oriented approach to investment. The mutual fund calculator helps investors understand the time frame in which they can hope to achieve the goal and the estimated return. Furthermore, a mutual fund calculator lets investors play with the numbers until they finalize the investment amount, rate of return, and the time frame required to reach their investment goal. 

While the calculator will help you estimate the return, it is important to note that mutual fund returns are subject to market risk. Hence, it is advisable to consider a conservative rate of return for your mutual fund investment. 

The CoinSwitch mutual fund returns calculator above is designed to estimate returns easily. All you need to feed into the calculator is your investment amount (monthly SIP or lumpsum), time horizon, and the expected rate of interest and you will get the estimate in a matter of seconds.

The benefits of using a mutual fund calculator

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

• Gives you a fair idea of what to expect

Unlike a fixed deposit, mutual funds do not guarantee a fixed rate of return. While a mutual fund calculator cannot calculate the precise redemption value for you, it can give you an appropriate estimate of the returns. Since it is an automated tool, it minimizes human error.

• Simplifies financial planning
   

There are multiple mutual fund schemes available in the market. All these schemes have different historical returns. A mutual fund calculator can help you compare the returns from multiple schemes. This will make decision-making easier. 

• Accessible online

Mutual fund return calculators like the one above can be easily accessed from any corner of the world if you have internet connectivity.

Conclusion

Your mutual fund investment journey begins by evaluating different mutual fund schemes. The mutual fund calculator will help you make appropriate estimates for each scheme in a time-saving manner. Of course, the scheme should suit your investment goals, but the mutual fund returns calculator can help you make the right decision.