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Making Informed Decisions Using a Mutual Fund Return Calculator

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14 Jul 2023

Mutual Funds are a popular investment vehicle. They offer risk diversification and professional management to all. You must own a few but performing mutual fund schemes based on your goals in your investment portfolio. However, understanding and analysing mutual fund returns can be challenging. That is where a mutual fund return calculator comes in handy.


What is a Mutual Fund Investment Calculator

A mutual fund growth calculator is a powerful tool that helps you analyze the past performance of mutual funds and estimate future returns. It takes into account factors such as the investment amount, holding period, and historical returns to generate estimated projections. 

Once you input these details into the calculator, it utilizes a mathematical formula to calculate the potential growth of your investment. 

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The calculator uses the following formula to provide the results:

For lumpsum investment:

Final Value = Present Value (1 + r/100)^n

Where: - 

r is the rate of return

n is the investment duration 

For SIP investment

Final Value =P [(1+i)^n-1]*(1+i)/i 

Where: - 

P is the principal investment amount 

i is the compounding rate of return 

n is the investment tenure in months  

Benefits of Mutual Fund Return Calculator

  • Regular investment planning: By calculating the potential returns on monthly or quarterly investments, you can devise a disciplined investment strategy that suits your financial capacity.
  • Goal-based investing: It assists in determining the required investment and time horizon to accomplish your objectives, such as a child's education, house purchase, or retirement planning.
  • Time-saving tool: Mutual fund calculator saves time by providing quick results instead of manually crunching numbers and exploring multiple scenarios.
  • Comparison made simple: With this calculator, you can easily compare various mutual fund schemes available online.

What are the different types of mutual fund returns?

Prior to utilising a mutual fund growth calculator, it is crucial to familiarise yourself with the various types of returns that can be calculated for mutual fund schemes.

1. Annualised return

Annualized returns indicate the average yearly growth rate of your investment. Suppose you invest Rs. 50,000 in a mutual fund scheme, and after one year, your investment value increases to Rs. 55,000. The annualized return can be calculated as follows:

Formula:

(Final Value / Initial Value) ^ (1 / Number of Years) - 1

In this case, the return would be:

(55,000 / 50,000) ^ (1 / 1) - 1 = 10%

Therefore, the annualized return on your investment is 10%.

2. Absolute return

Absolute returns measure the actual profits or losses generated by a mutual fund investment over a specific period. It indicates the total return on investment, regardless of the time taken to achieve it. 

Let's assume you invest Rs. 1 lakh in a mutual fund scheme, and after two years, the investment value becomes Rs. 1.20 lakhs. 

The absolute return can be calculated as:

Formula:

(Final Value - Initial Value) / Initial Value * 100

In this case, the return would be:

(1,20,000 - 1,00,000) / 1,00,000 * 100 = 20%

Therefore, the absolute return on your investment is 20%.

3. CAGR (Compounded Annual Growth Rate) 

CAGR represents the annualised growth rate of an investment over a specific period, considering the effect of compounding.

CAGR is a useful tool for investors to track the performance of their investments over time. You can use a CAGR calculator to easily calculate the CAGR of your investments.

For instance, let's consider an investment of Rs. 2 lakh in a mutual fund scheme, and after three years, the investment value becomes Rs. 2.80 lakh. 

The CAGR can be computed using the following formula:

((Final Value / Initial Value) ^ (1 / Number of Years)) - 1

In this case, the returns would be:

((2,80,000 / 2,00,000) ^ (1 / 3)) - 1 = 13.79%

Hence, the CAGR of your investment is approximately 13.79%.

4. Trailing return 

Trailing return allows you to evaluate the fund's performance relative to its past performance and benchmark it against other funds. It provides insights into its performance over a specific period leading up to the present day. To calculate the trailing return, use this formula: 

[(Current Net Asset Value (NAV) / NAV at the start of the period)^(1/number of years)] - 1

For example, let's say you invested Rs 10,000 in a mutual fund three years ago, and its current NAV is Rs 12,000. To find the trailing return, calculate [(12000 / 10000)^(1/3)] - 1, which gives us a result of 14.47%.

5. Point-to-point return

Point-to-point return of a mutual fund measures its performance between two specific dates. It helps you evaluate the fund's growth over a particular investment period. The formula to calculate point-to-point return is:

[(NAV at the end / NAV at the start) - 1] * 100

For instance, suppose you invested Rs 10,000 in a mutual fund on January 1, 2020; the NAV at that time was Rs 50. After two years, on January 1, 2022, the NAV increased to Rs 60. 

To find the point-to-point return, apply the formula: [(60 / 50) - 1] * 100, which gives us a return of 20%.

Conclusion

The mutual fund growth calculator simplifies investing by providing estimated results quickly, enabling you to make informed decisions and select the scheme that aligns best with your goals. It is important to note that this calculator operates on predefined rules and does not account for external factors that may impact your investment returns. Therefore, it is advisable to consider the current market scenario before relying solely on the calculator's output. Moreover, the calculator might not always help compute all the different types of returns stated above.

Related Articles: 5 tools for analysing mutual funds to invest smartly | Different types of Mutual Funds to suit your needs | Portfolio Management Services Vs Mutual Funds

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