Mutual funds can help you build wealth over time, but it’s important to know how to track their returns. By calculating mutual fund returns, you can determine if your investments are helping you reach your financial goals.
Different mutual fund return calculators simplify this process, providing clear insights into your investment performance and helping you make data-driven decisions for your financial future. Before delving into the calculation of mutual fund returns, let us first understand what these returns are.
What Are Mutual Fund Returns?
Simply put, mutual fund returns show how much money you have made (or lost) on your investment over time. When you buy mutual fund units at a certain price (NAV) and their value increases, that’s your return.
For example, if you invest ₹10,000 when each unit costs ₹10, you get 1,000 units. Later, when the price rises to ₹12 per unit, your investment grows to ₹12,000, giving you a 20% return.
Calculating mutual fund return manually is a time-consuming task and is prone to errors. This risk can be easily eliminated by using a mutual fund return calculator, present on the websites of leading discount brokers.
How Mutual Fund Return Calculators Work
Mutual fund return calculators are practical tools that help investors see the potential growth of their investments. They transform complex financial formulas into easy-to-understand results that show what your money might do over time.
Basic Function
Mutual fund return calculators take the information you provide and run it through mathematical formulas. They need to know how much you will invest, for how long you will invest and what return rate you expect. After processing these details, they display the estimated future values of your investment.
Behind the Calculations
The mutual fund return calculator uses compound interest principles to estimate growth. For lump sums, it multiplies your principal by a growth factor based on time and return rate. For SIPs, it treats each payment as a mini-investment with its own growth timeline, then adds everything together to show the final amount.
Results Explained
After running the calculations, you will see an estimate of your investment’s future value. This typically includes your total contributed amount, the additional wealth gained through compound growth and the final projected value.
How to Calculate Mutual Fund Return using the Calculator
Here are the steps for using a mutual fund returns calculator:
1. Access a mutual fund calculator on a trusted broker website
2. Enter your planned monthly investment amount (SIP amount)
3. Select your desired investment period in years
4. Input your expected annual return percentage based on fund history
5. Review the projected results showing the invested amount versus the expected return
6. Analyse the yearly breakdown to understand your investment’s growth over time
The calculator also provides a complete view of your potential investment journey, showing the total amount invested, wealth gained and expected final amount.
Practical Benefits of Mutual Fund Return Calculator
● Visualise investment outcomes to set realistic financial goals based on projected growth potential.
● Experiment with different investment amounts to determine the optimal monthly contribution for your objectives.
● Compare various time horizons to understand how investment duration impacts your overall returns.
● Adjust expected return rates to prepare for different market scenarios and risk levels.
Conclusion
Understanding how to track your mutual fund return is crucial for successful investing. Mutual fund return calculators make this process simple and accessible for everyone. By regularly checking your mutual fund performance and understanding the numbers, you can stay on track toward your financial goals and build lasting wealth.