Mutual Fund Return Calculator – How to Use it to Find the Best Plan for Yourself?

A mutual fund is a type of investment wherein money is pooled from different investors to invest in various asset classes. What distinguishes mutual funds from other investment instruments is that they are managed by experts and that the gains/losses from these funds are distributed proportionately among the investors (after deducting taxes and other charges, as applicable).

If you are interested in investing in a mutual fund, it is natural to wonder about the returns that you could clock in the future. Although involving fairly complex calculations, you can now do this in a hassle-free manner using a mutual fund return calculator.

Keep reading below to find out how to use a mutual fund return calculator and how it can indeed help you select the best mutual fund as per your requirements.

What is a Mutual Fund Return Calculator?

A mutual fund return calculator is a tool that can help you calculate the returns on a certain mutual fund scheme. It can also help ascertain an approximate future value of the investment. The tool can help you estimate the future position of a certain fund based on its projected quantity of investment, time horizon, rate of return, and so forth.

As there are various investment Plans, methods, and time horizons with respect to mutual funds, performing the calculations by yourself can be fairly difficult. You can, however, easily deploy a mutual fund return calculator to ascertain the returns and all the other required details.

How Does a Mutual Fund Calculator Work?

Before using one yourself, it is essential to understand how a mutual fund return calculator works. Let’s find out more –

1. For a lump sum amount

AM = P * (1 + r/100) * n

AM = Amount on maturity

P = Principal amount

n = Number of holding years

r = Estimated return rate

2. For regular instalments (SIP method)

AM = T * {(1+r) * n – 1} * (1 + r) /r

AM = Amount on maturity

T = Instalment or contribution amount

r = Rate of return

n = Holding tenure (in months)

Keep in mind that the CAGR (compound annual growth rate) formula is used in the lump sum method, whereas the XIRR (Extended Internal Rate of Return)formula is employed in the SIP instalment method.

This is because the CAGR is only useful for computing returns on a point-to-point basis. When there are multiple cash flows (as in SIP), you must utilise XIRR since the returns for each cash flow will change. As XIRR calculates a single return percentage for all cash flows, it assumes high importance with respect to SIPs.

When you invest in the conventional way, the company managing the funds will subtract its fee from your returns (through a broker, advisor, or distributor). As a direct plan does not include an intermediary, you don’t have to pay any commission, which lowers the expense ratio and results in better returns.

How Can a Mutual Fund Calculator Help You?

Mutual funds and SIPs are experiencing steady growth in the UAE. The latter has gained significant prominence, considering the facilitation of regular investment in the market without the requirement of large capital.

As a potential investor, you’d certainly want to invest in the best mutual fund plan as per your budget and financial goals. This is where a mutual fund return calculator can be helpful, as you can easily use it to determine the returns with a particular fund. All you need to do is enter specific variables such as investment amount, investment time, and the rate of return to have the approximate returns presented to you.

With most mutual fund return calculators being available for free, you can try various combinations as per different plans. This can give you a good idea of which plan would fulfil your long-term financial goals the best without straining your budget much.

Benefits of Mutual Fund Return Calculator

Listed below are the major benefits of using a mutual fund return calculator –

• Helps in estimating the maturity value
• Allows extensive comparison of investment returns
• Helps visualise the difference between lump sum and SIP amount
• Assists in long-term investment planning

Check out some frequently raised queries regarding mutual fund return calculators below –

FAQ's