 Modules for Beginners

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# How to calculate returns from MF investments?

4.5  Whether you are yet to begin investing in mutual funds, or whether you have already invested in one such scheme, it is important to know how to calculate mutual fund returns. Only then can you identify the mutual funds that will deliver high returns, so you can make investment decisions accordingly. Additionally, knowing how to calculate mutual fund returns also helps you analyze if the fund you have invested in is performing up to your expectations.

# So, how do you calculate the returns from your mutual fund investments?

In the simplest terms, the returns from any investment can be calculated using the following formula.

 Return on investments = (Net returns ÷ Initial investment) x 100

So, for example, say you were to invest Rs. 10,000 in a mutual fund scheme, and at the end of one year, your investments grow to Rs. 12,000. In this case, your net returns, assuming no other charges, would be Rs. 2,000. So, using the formula given above, you can see that the return on your mutual fund investments would be 20%.

But is it always so simple? Not quite. For starters, you need to remember that there are two ways in which you can invest in mutual funds.

• You can invest a lump sum amount.
• Or, you can invest in mutual funds via an SIP.

So, how to calculate the mutual fund returns in each of these cases? Let’s find out.

# Calculating expected mutual fund value in case of a lump sum investment

In this case, you can use the following formula to determine how much your initial investment will grow to, based on the expected returns of your fund.

 Future value of the fund = Present value (1 + r/100)n

Here, r is the expected rate of return and n is the duration of investment.

So, for example, say you were to invest Rs. 1,00,000 in a mutual fund scheme, and you wish to remain invested for 5 years. If the expected rate of return from the fund is 10%, you can expect your investments to grow up to Rs. 1,61,051 in five years’ time.

# Calculating expected mutual fund value in case of a Systematic Investment Plan

In an SIP, you regularly invest a fixed sum of money in the mutual fund periodically. So, the formula that you need to use to calculate how much your fund would grow to would be as follows.

 Future value of the fund = Present value [(1+i)n-1] x (1+i)/i

Here, i is the compounded rate of return and n is the duration of investment.

So, say you were planning to invest Rs. 2,000 each month in a mutual fund scheme with an expected rate of return of 10%. At the end of 5 years, your investment can be expected to grow up to Rs. 1,54,874.

# Using a mutual fund return calculator

Calculating the returns from your mutual fund investment may get tedious if you do it manually each time. This is where a mutual fund calculator can prove to be handy. You simply need to follow the steps outlined below to use this nifty online tool to calculate your investment growth.

1. Select the nature of investment, namely lump sum or SIP.
2. Enter the amount that you wish to invest as a lump sum or the fixed amount of SIP you wish to invest.
3. If you opt for the SIP method, enter the frequency of investments, such as monthly, quarterly or semi-annually.
4. Enter the expected rate of return per annum.
5. Submit the details of the duration of your SIP or the amount of time for which you wish to remain invested, if it is a one-time investment.

That’s it! The mutual fund return calculator will then compute the investment amount at maturity based on the parameters provided by you.

# Wrapping up

See how it is quite easy to calculate the returns on mutual funds once you know the rationale behind the formula? That said, you don’t need to always manually calculate the returns, especially if you opt for an SIP. That would get tedious and cumbersome. You can, instead, always rely on a mutual fund return calculator to quickly help you make your investment decisions.

# A quick recap

• In the simplest terms, the returns from any investment can be calculated using the following formula: Return on investments = (Net returns ÷ Initial investment) x 100
• In case you make a lump sum investment, you can use the following formula to figure out how your capital will grow over time: Future value of the fund = Present value (1 + r/100)n

In case you start an SIP, you can use the following formula: Future value of the fund = Present value [(1+i)n-1] x (1+i)/i

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