Mutual funds are considered a sound medium of investments nowadays for the comfort, assurance, and growth they offer investors. It is a portfolio of investments in different funds. Or to put it simply, a basket having an assortment of different kinds of fruits. In a mutual fund, investment is done in equity and equity-related instruments, debt and debt-related instruments, hybrid funds, growth funds, liquid funds and many others. Being under the expert guidance of a fund manager, mutual funds offer safety of returns and growth prospects in future. An individual investor may find himself lost in the number and types of mutual funds available in the financial market. A lump-sum calculator can be a handy tool to get firsthand information about the investment you are going to make with your hard-earned money.
Why Mutual fund calculators?
Mutual Fund calculators save us from the task of manual scavenging for metrics like returns, especially when you are an amateur investor unaware about the methods of the financial world. The skepticism and fear accompanied with mutual funds and other stock market investments can often force investors to tread the conventional path. Agents and brokers may mislead you to grab commission over your investments. You may have to bear losses, in case, you do not understand the bears and bulls of a stock market, the NAV of investment, past performance of a mutual fund and other factors. Manual computations can break your bones, but a lump-sum calculator can come to your rescue. These calculators present you with the results in a matter of seconds.
What is a mutual fund calculator?
A mutual fund calculator is, as its name suggests, a tool dedicated to calculating the returns on your lump-sum mutual fund investment. All the complex formulae and tedious calculations are taken care of by the calculator. It is convenient, quick and easily accessible. All you need to enter as input is a lump-sum amount in rupees, number of years and expected rate per annum. The calculator generates quick and accurate results by which you can make sure whether the future value of the current investment you have made or are going to make it feasible or not.
There can be two ways using which the returns are calculated by a lump-sum calculator:
- Absolute return: when invested for a period of one year or less, the calculator calculates the amount on you lump-sum investment in absolute terms. For instance, If Mr. X invests a sum of rupees 10,000 on 1st January, 2017 and the NAV of his investment on 1st December, 2017 stands at rupees 15,000; his absolute rate of return would be 50% i.e. ([(5,000/10,000)* 100]. The gains and losses are calculated simply by subtracting the initial investment from the current value of the funds.
- If the same funds are held by Mr. X for 2 years or more then the returns are calculated on the basis of CAGR (Compounded annual growth rate). A compounded rate of interest is taken into consideration because the returns of the first year are added back to the initial investment, thereby increasing the principal amount and resulting in subsequent higher rate of returns.
A Mutual Fund Lumpsum calculator may seem to be a matter of plain calculations but the benefits it gifts investors with are noteworthy. Let’s talk about a few of the sugary delights:
- It reduces dependence on agents and distributors. A lump-sum calculator helps the prospective investor in estimating an imputed value of the amount they want to invest at an expected rate of return and for a given number of years. There is no manipulation or hidden terms involved. While in case of agents and distributors, a client may or may not be told about the real picture of the fund, especially the part where the fund does not perform well.
- Lump-sum calculators are easy to understand and use. Being automated and data based, these calculators provide you with an objective opinion about your investment. The figures received can always accompany the subjective parameters like risk appetite, tenure, etc on which you try to choose the desirable investment for yourselves.
- Being handy, the calculator can lend you figures and value of your mutual fund investment at any point of time during the tenure of the investment. The results will always be accurate and consistent.
- A lump-sum calculator works two ways: the first use has already been discussed above where you can put a lump-sum amount, number of years and expected rate of return. The calculator works other way round as well. You can enter the returns value you want to receive by investing in the mutual fund. This lets you know what investment you are required to make given the tenure and expected rate of return.
- Lastly, you do not need to engage yourself in complex formulae and tedious calculations. The results are accurate as there is no room for human errors.
- Some calculators also help you back calculate how much you would have made now had you invested in a particular Mutual Fund scheme in a particular period. This works for both SIP and lumpsum investments and helps drive home the point about having a long term view of investments. While a fund may not have performed for certain periods, if your returns are net positive then the concept of long term investing holds some water.
Besides easing up the decision-making process, it reduces dependence on third parties. Advisors may often show you a carefully picked time period where the returns have been fruitful but with calculators like these easily accessible you no longer need to rely on these advisors to help you select funds. Investors can know in advance what they are entering into, and plan their financial journey likewise. Tools like Lumpsum calculator and online investment, coupled with support for a staggeringly large number of leading mutual fund schemes are just what the doctor ordered for an aspiring investor. As should be obvious by now, a lumpsum investment can yield you solid returns.
Think before you leap. Calculate before you invest.