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How to Calculate Mutual Fund Returns
12 Sep 2023

If you intend to invest in a mutual fund scheme or have invested in one, it helps to be aware of the types of mutual fund investment options available. For instance, you could choose a lump sum investment or you could opt to take the systematic investment plan (SIP) route. You could also opt for a combination of the two. 

A SIP is a mutual fund scheme that helps investors to channelise their investments on a periodic basis, whether it is monthly, quarterly or half-yearly. A SIP brings in an element of discipline into investments. On the other hand, the lump sum investment method involves investing the full amount in one shot.

The mutual funds returns depend on the type of investment option you choose. So, how does one calculate mutual funds returns? You can use a mutual fund calculator to compute your returns, either for SIP or the lump sum method. 

How to compute your SIP mutual funds returns?

SIP mutual funds returns work on the below formula:

P [ (1+i)^n-1 ] * (1+i)/i where P is what you invest at periodic intervals, n pertains to the number of investments/payments and i is the rate of interest (periodic). So if you invest Rs 2,000 each month for 24 months, where you expect a rate of return at 12 per cent and your i or periodic interest rate would be 0.01, your amount at maturity or future value would be 2000 x [(1+0.01) ^24 - 1] * (1+0.01)/0.01, which would give you a value of approximately Rs 54,500. 

How does a lump sum formula work?

A lump sum investment can give different types of returns, including absolute returns and simple annualised returns. When it comes to calculating absolute return, it is a fairly simple formula, which is the (the current NAV - beginning NAV) / beginning NAV x 100. The NAV is the net asset value or market value of each unit of the fund. 

So, if your beginning NAV is 25 and NAV right now is 40, your absolute returns would be 60 per cent for a period of less than 12 months. Absolute returns is only used for calculating returns if your investment is under a year and is expressed in percentage value. 

On the other hand, simple annualised return, which pertains to how much you may have earned if you would have invested in the full year works on a different formula. Here you would have to use [{1+ absolute rate of return)^(365/the number of days)] - 1.

With a compounded annual growth rate or CAGR, you can calculate the average rate of growth for an investment period of more than 12 months, the formula is {[(current NAV/beginning NAV)^(1/the number of years)]-1} x100. If your investment is in months, you can replace 1/number of years with 12/number of months. 

Alternatively, another formula can be used, where CAGR = (current value/initial value)1/n-1 where n is the number of years.


Using elaborate formulae can be time-consuming and laborious and it is far easier to use a simple online mutual fund calculator to compute your returns. You could use both a SIP calculator and a compounding returns calculator (for SIP and lump sum) for your investments. 

Related Articles: Investing in Mutual Funds is Now Easy with MO Investor App | Invest In Mutual Funds Online In 5 Simple Steps |  How to Analyse Mutual Funds for Big Returns | Tax Benefits of Investing in Mutual Funds 


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