A Mutual Fund Calculator is an online tool which helps investors to calculate the future value of an investment. It uses simple details such as the amount invested, the time period and an expected rate of return. The result gives an estimate of how much the investment might grow over time.
Mutual Funds pool money from many investors. The money is then put into assets such as shares, bonds or other securities. The value of these investments may go up or down depending on market conditions. Investors can use a calculator to see what potential outcomes may be before they invest.
How Does a Mutual Fund Calculator Work?
A mutual fund calculator uses a formula to forecast the future returns. It is contingent upon the way you invest the money.
Two common forms of investment are:
- Lump sum investment
- Systematic Investment Plan or SIP
In a lump sum plan the investor pays one amount. The calculator projects how that amount might increase over a period of time.
A SIP is an investment of a fixed amount of money at regular intervals. This is done monthly, generally. Each instalment is invested for a different period. The calculator takes all these payments into account before providing the final estimate.
What Inputs Does the Calculator Need?
A calculator typically asks for a few basic details.
Amount of Investment
Enter the amount you want to invest. This can be the monthly amount of a SIP. It is the total amount invested in a lump-sum plan.
Term of Investment
Enter the time you plan to invest. This is usually expressed in years.
Anticipated return
Assumed annual rate of return. This rate is for calculation purposes only. This does not mean that the fund will give same return.
Once the data is entered, the calculator reports the estimated future value.
Using a Mutual Fund Calculator
The tool is very simple to use.
- Select either SIP or lump-sum investment.
- Enter the amount you would like to invest.
- Choose the investment term.
- Enter the expected rate of return;
- Look at the value the calculator is estimating.
Some calculators display the total amount invested and the estimated gain as well.
Simple Example
Let’s say an investor wishes to invest ₹5,000 every month for 10 years. Expected annual return is 10%.
The calculator then uses this information to give an estimate of what the investment could be worth in 10 years’ time.
The result is an estimate only. Actual returns will vary with market movement on which mutual fund values depend.
The investor can also vary the amount, period and rate of return. This makes comparing different plans easier.
For instance, the person can see what happens if the monthly SIP is increased. The investor can also try longer or shorter investment periods.
How a Mutual Fund Calculator is Useful
Investment planning is easier with a calculator.
It gives investors a simple way to see the potential growth of an investment. It can also help them decide if their planned investment is in keeping with a financial goal.
For example, a person might be saving for his education, a house or other future need. You can use the calculator to see how different monthly amounts might impact the estimated value.
It can also explain the effect of being invested for a long period of time. Investment returns can also produce returns over time. This is exacerbating.
What Should Be Considered By An Investor?
Mutual fund calculators are not predictors of future returns.
The rate used in the tool is just an assumption. Actual returns may be more or less.
There are a few things that can impact the end value. They include:
- Market movement
- Fund expenses
- Taxes
- Exit load
- Investment timing
- Missed SIP payments
Investors should also look at the fund’s objective, its risk level and investment period before investing.
A calculator can aid in planning, but it cannot tell if a fund is right for someone.
Conclusion
Investors use a Mutual Fund Calculator to estimate the possible value of a SIP or a lump-sum investment. It shows projected value based on the investment amount, time period and expected return rate.
The tool can help with goal setting and comparison. But the result is only an approximation. Mutual Funds are linked to market and therefore actual returns may vary over a period of time.
