What is a mutual fund?

A Mutual Fund is a professionally managed investment scheme. It is run by an asset management company (AMC) which serves as a mediator for the retail investors. The AMC pools in money from a large number of investors and invests it in equity shares, bonds, money market instruments, and other types of securities. Each investor, in turn, is assigned a specific number of units proportionate to the invested amount in the fund. The investor is known as the unitholder. The unit holder shares the gains, losses, income, and expenses of the fund in proportion to his investment in the fund.

The fund manager will manage the investor’s money as per the investment objectives of the scheme. The goal of the fund manager is capital appreciation or regular income by a judicious selection of financial instruments to achieve the investment objectives of the mutual fund scheme.

For example, an equity mutual fund will invest in stocks so that investors enjoy capital appreciation in the long-run. The debt fund will invest in fixed income securities for investors to get a regular income and government securities to generate a higher return based on the interest rate movements. The balanced fund will invest in a mix of equity and bonds/fixed income to offer a higher return on investment and protect the portfolio in a stock market downturn.

What is a mutual fund calculator?

The mutual fund calculator is a simulation that helps you to calculate the returns from the mutual fund investments. You can calculate the maturity value of an investment if you invest a lump sum amount or even through the SIP route.

A mutual fund calculator is an easy to use tool that helps you to get an idea of the maturity value of the mutual fund investment, even before you invest the money. It allows you to budget for expenses and achieve your financial goals, as you already know the amount of money you will get at maturity. You can enter the SIP amount, duration of the SIP, and the frequency of the SIP to calculate the maturity amount for an estimated rate of return on the investment.

The mutual fund calculator has a formula box where you select the nature of the investment. It can be a lump sum investment or a SIP investment. You select the amount of investment, rate of return and the duration of the investment to get the maturity amount. If the nature of the investment is a SIP, you select the SIP amount, frequency, time of the investment, and the expected rate of return. The mutual fund calculator shows you the value of the investment at maturity.

How does a mutual fund calculator work?

The ClearTax Mutual Fund Calculator uses the concept of future value to give you an accurate estimate of the maturity value of your investment.

One-Time Investment

For example, you have invested a lump-sum amount of Rs 1 lakh in a mutual fund scheme for 10 years. You have estimated the rate of return on the investment at 8% per annum. You can calculate the future value of the investment using the formula:

Future Value = Present Value (1 + r/100)^n

Present Value (PV) = Rs 1,00,000
r = Estimated rate of return of 8% = 8/100 = 0.08
n = Duration of the investment which is 10 years.

You have to calculate the Future Value (FV) of the mutual fund investment at maturity or after 10 years.

FV = 1,00,000 (1+8/100)^10

FV = Rs 2,15,892.5.

So, the future value of the mutual fund investment after 10 years at an estimated return of 8% is Rs 2,15,892.5

SIP investment

You can also calculate the maturity value of a SIP investment using the mutual fund calculator.

Use the formula:

FV = P [(1+i)^n-1]*(1+i)/i

FV = Future value or the amount you get at maturity.
P = Amount you invest through SIP
i = Compounded rate of return
n= Investment duration in months
r = Expected rate of return

For example, you invest Rs 1,000 a month in a mutual fund scheme using the systematic investment plan or SIP route. The investment is for 10 years, with an estimated rate of return of 8% per year.

You have i = r/100/12 = 8/100/12 = 0.006667. (You must convert the rate of return to the monthly figure through dividing by 12). You also have n = 10 years or 120 months.

FV = 1,000 [(1+0.006667)^120 – 1] * (1+ 0.006667)/0.006667

FV = Rs 1,84,170.

So, the future value of a SIP investment of Rs 1,000 per month for 10 years at an estimated rate of return of 8% is Rs 1,84,170.

How to use the ClearTax Mutual Fund Calculator?

Use the ClearTax Mutual Fund Calculator based on the nature of your investment.

Lump-Sum investment:

• You must select the One-Time Investment (Lump Sum) option in the ClearTax Mutual Fund Calculator.
• You then fill in the amount of investment, expected rate of return and the duration of the investment.
• The ClearTax Mutual Fund Calculator shows you the value of the investment at maturity.

SIP investment:

• You must select the SIP option in the ClearTax Mutual Fund Calculator.
• You then fill in the amount of investment, frequency of the SIP and the duration of the SIP.
• The ClearTax Mutual Fund Calculator shows you the value of your investment at maturity.

How to invest in mutual funds?

You can invest in mutual funds through different routes.

1. Direct Plans: You can approach the asset management company (AMC) and invest in the direct plan of your choice. These plans have a low expense ratio because they don’t charge a distributor commission. Hence, you can earn a better rate of return over the long-term.

2. MF Distributor: You can contact a registered mutual fund distributor who will help you out with the requisite documentation. You will be investing in a regular plan which will charge a distributor’s commission.

3. Online: There are several third-party portals available online. You can visit any of them and invest in a variety of mutual funds by paying a nominal fee.

Nature of investment (SIP/Lumpsum)

There are two ways of investing money in mutual funds. You can either invest through a SIP or invest a lump-sum amount.

1. Lump-sum investment: You may invest a considerable portion of your disposable income in a mutual fund scheme of your choice. You can also invest the windfall you get from the sale of an asset or an inheritance. However, investing a lump sum involves higher risk. That’s why it is always recommended to go via the SIP route.

2. Systematic Investment Plan (SIP): Under a Systematic Investment Plan, you instruct the bank to deduct a fixed sum from your savings bank account each month and invest in a mutual fund scheme. In this way, you can buy units continuously without having to worry about the right time to enter the market. You can also get the benefit of rupee cost averaging and enjoy the power of compounding.

FAQs on ClearTax Mutual Fund Calculator