A mutual fund calculator is a financial tool that helps you estimate the final amount you get after a specified period. In simple terms, it shows how much your investment can grow over time. With a mutual fund calculator, you can estimate the returns on your savings, choose the best plan for you and optimise your portfolio.
What Are Mutual Funds?
Mutual Funds are financial vehicles that pool money from multiple investors to collectively invest in a diversified portfolio of securities, such as stocks, bonds, money market instruments and other assets. This pooled money is managed by a professional fund manager, who makes investment decisions to achieve the fund’s specified objectives.
How Can Mutual Funds Create Wealth For Investors?
Such funds collect capital from various investors, which allows you to invest small amounts into a broader asset base. They are managed by professional fund managers who make decisions on behalf of the investors.
After that, the income and gains from the investments in the mutual fund are distributed to the investors based on the number of units they hold. The value of each unit is calculated as the Net Asset Value (NAV), which fluctuates based on the market value of the securities within the fund.
By investing in a mutual fund, you have a diversified portfolio, which spreads risk across different assets. This reduces the impact of any single investment’s poor performance. A mutual fund investment of ₹10,000 could grow to an amount of ₹31,058 in 10 years, assuming a 12% annual return and compounding.
Want to know the future value of your investment? Here’s a mutual fund calculator.
What Is A Mutual Fund Calculator?
A mutual fund calculator is an online tool designed to help you estimate the potential returns on your investment in mutual funds. The calculator approximates the returns one might expect from their mutual fund investment by putting key information such as the investment amount, return rate per annum (p.a.) and investment period.
Using a mutual fund calculator simplifies the process of evaluating investment options and provides a clearer understanding of goal-based investment planning over a given period.
How Does A Mutual Fund Calculator Work?
A mutual fund calculator works by taking information such as the investment amount, return rate p.a. (assuming the type of mutual funds that you have invested in) and investment period. Based on this information, the calculator uses financial formulas such as absolute return, compound annual growth rate (CAGR) and simple annualised return to calculate potential returns on a mutual fund investment.
Why Should You Use A Mutual Fund Calculator?
You should use a mutual fund calculator for the following reasons:
1/ Easy To Use: It offers a user-friendly interface that simplifies the process of calculating potential returns on investments. With straightforward inputs like the investment amount, expected return rate and investment period, you can quickly estimate returns without manual complex calculations.
2/ Goal-Oriented Investing: You can align your investment decisions with specific financial goals using this calculator.
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3/ Financial Planning: It helps in financial planning by assessing and comparing the potential returns from different investment scenarios. They compare different investment options or scenarios by adjusting variables like investment amount, return rate and investment period. This comparative analysis helps in selecting the best investment strategy for you.
4/ Accuracy: It provides accurate calculations based on predefined financial formulas like absolute return, CAGR and simple annualised return.
How To Use A SIP Calculator?
Here’s how you can use a Systematic Investment Plan (SIP) Calculator:
Step 1: Put the amount you plan to invest every month, for example, ₹5,000.
Step 2: Mention the duration for which you intend to continue your SIP, for instance, 15 years.
Step 3: Enter the estimated rate of return on your investment per year, for example, 12%.
Once you have put these details, the calculator instantly computes and displays the total expected value of your investment over the specified period. In the above case, upon entering these values, the calculator would generate a total corpus of ₹25,22,880.
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What Is A SIP Calculator?
A SIP calculator is a tool that helps you estimate the potential growth of your investments made through SIPs in mutual funds over a specific period. This calculator takes into account parameters such as the monthly investment amount, investment duration and expected rate of return to provide an approximation of the future value of the investments.
How Does A SIP Calculator Differ From A Mutual Fund Calculator?
While a SIP calculator is specifically made for estimating returns on regular SIP investments in mutual funds, a mutual fund calculator offers a broader analysis of various investment options within mutual funds.
Let’s consider you want to invest ₹5,000 every month in a mutual fund for 15 years. The expected annual return on the investment is set at 12%. Here’s how the two calculators would differ in this scenario:
For SIP Calculator: The SIP calculator will calculate the total value of the investment at the end of 10 years, factoring in the monthly investment, duration and expected returns. The output will show how much you would have accumulated through monthly SIPs over 15 years.
For Mutual Fund Calculator: The Mutual Fund calculator will provide a more comprehensive analysis. Not only will it calculate the SIP aspect but also potentially show the impact of lump-sum investments, and the overall wealth gained through investments.
What Is A Lump Sum Calculator And How To Use It?
A lump sum calculator is an investment tool used to compute the estimated maturity value of an investment made in a mutual fund as a lump sum. Here is how you can use a lump sum calculator:
Step 1: You enter the total amount you wish to invest as a lump sum, the expected rate of return and the duration for which you plan to hold the investment.
Step 2: Now, the lump sum calculator will perform the computations based on the compound interest formula. It will display the estimated return on the investment, providing you with the maturity value of your lump sum investment at the end of the specified period.
What Are The Benefits Of Reinvesting Dividends?
The benefits of reinvesting dividends are as follows:
1/ Compounding Growth: You can benefit from the power of compounding. By reinvesting the dividend payments back into the investment, you can buy more shares or units of the asset, leading to a larger investment base. Over time, this compounding effect can significantly boost the total returns on your investment.
2/ Increased Corpus: You acquire more shares or units of the investment, increasing your ownership stake in the asset. As the number of shares held grows, so does the potential for future dividend payments, creating a cycle of reinvestment and growth.
3/ Rupee-Cost Averaging: It helps you practice rupee-cost averaging, which involves buying more shares when prices are lower and fewer shares when prices are higher. This strategy can reduce the impact of market volatility and improve the overall average cost of the investment over time.
4/ Long-Term Wealth Accumulation: Reinvesting dividends can be an effective way to accumulate wealth consistently. By reinvesting dividends and allowing returns to compound over time, you can achieve higher growth in your investment portfolio.
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DISCLAIMER: Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Registration granted by SEBI, membership of BASL (in case of IAs) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors. Investments in securities market are subject to market risks. Read all the related documents carefully before investing. The securities quoted are for illustration only and are not recommendatory.
