The mutual fund calculator is nothing but a mutual fund returns calculator. It helps you simulate various outcomes based on structured input. The MF return calculator can either be a generic calculator, as it normally is or it can be fund specific, in which it needs to be backed up with mountains of data. However, an MF return calculator that is fund specific can be more actionable as otherwise the mf calculator is no better than a pure future value calculator.
Let us first and foremost focus on how the mf calculator can provide value added inputs to you as an investor or as a potential investor. Here is what the mutual fund returns calculator provides you with.
To sum it up, the big merit in such mf calculators is that they give a good indicative picture well in advance.
The mutual fund calculator essentially helps you to simulate various situations and accordingly calculate the returns from the mutual fund investments. You can essentially calculate the maturity value of an investment depending on whether you plan to invest lump sum or as a systematic investment plan or SIP. Effectively, the mutual fund returns calculator helps you to get an idea of the maturity value of the proposed mutual fund investment, even before you invest.
Here are some of the key components that go into the calculation of the mutual fund returns calculator.
For example, if it is a systematic investment plan or SIP, then the inputs include the SIP amount,
duration of SIP, frequency of SIP, SIP date etc. This can be used to estimate returns over a certain
period of time. Alternatively, it can also be a lump-sum investment, in which case it is a lot simpler as
the calculation of multiple points for IRR is not there unlike a SIP.
In a lumpsum investment in mutual funds, you only select the amount of investment, rate of return and duration of investment to get the maturity amount. In a jiffy, the mutual fund returns calculator shows you the value of the investment at maturity.
Let us look at the application of the mutual fund returns calculator from the perspective of a one-time lumpsum investment and also as a SIP first.
Let us assume that you have invested a lump-sum amount of Rs.5 lakh in a mutual fund scheme for an indicative period of 8 years. If you estimate the likely CAGR rate of return on the mutual fund at 9% per annum. You can calculate the future value of the investment using the formula: Rs.500,000 x (1 + 9%) ^ 8, which will be Rs.996,281 in value. Again, this is indicative and not the actual figure. The actual figure could be higher or lower. But such an analysis helps you to plan better.
Such calculators can either be fund specific where you can make fund wise projections based on past returns. That is assuming that past returns sustain in the future but it rarely happens that a star performer suddenly becomes a lagged. So, sticking to star performers is normally a safe option and the only thing you need to do is to ensure that you have a hang of the winners and use past returns to project. Generic calculators are more common but they are not really actionable.
Let us assume that you have opted for a SIP instead of a lump-sum amount. You decide to invest Rs.10,000 per month on the 15th day of each month and estimate the annual return at 8.5% per annum over the next 10 years. You can calculate the future value of the SIP investment using the internal rate of return (IRR) formula. Such calculators are available free and you can also make these calculations in excel, which is relatively more complex.
Even in the case of SIP calculators, prefer the fund specific calculators as they are more actionable for investors. Remember that the SIP is all about rupee cost averaging and hence it is a long term relationship with the fund. Hence fund choice matters a lot. Rather than a generic SIP calculator, a fund specific calculator can be more useful for investors.
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Gold/NCD/NBFC/Insurance and NPS
Gold/NCD/NBFC/Insurance and NPS