Mutual Fund Return Calculator
Understanding Mutual Fund Returns
A Mutual Fund Return Calculator is an essential financial tool designed to help investors project the potential growth of their capital over a specific period. Whether you are investing a fixed amount every month through a Systematic Investment Plan (SIP) or a one-time lump sum, understanding how compound interest works is key to building long-term wealth.
SIP vs. Lumpsum: Which is Better?
Systematic Investment Plan (SIP): This method allows you to invest a small, fixed amount regularly (usually monthly). It is ideal for salaried individuals as it encourages disciplined saving and benefits from "Rupee Cost Averaging," where you buy more units when prices are low and fewer when they are high.
Lump Sum Investment: This involves investing a large chunk of money at once. This approach is often used when an investor receives a bonus, inheritance, or sale proceeds from an asset. While it can offer higher returns in a rising market, it carries a higher risk if the market enters a downturn immediately after the investment.
How the Calculation Works
For SIP investments, the calculator uses the formula for the Future Value of an Annuity:
FV = P × [((1 + i)n – 1) / i] × (1 + i)
Where i is the monthly interest rate and n is the number of months.
For Lumpsum investments, it uses the standard Compound Interest formula:
FV = P × (1 + r/100)t
Where r is the annual rate and t is the number of years.
Investment Example
If you start a monthly SIP of 10,000 for 15 years with an expected annual return of 12%, your total investment would be 18,00,000. Using the power of compounding, your estimated returns would be approximately 32,45,760, bringing your total portfolio value to over 50,45,760.