Mutual Fund Profit Calculator

Investing in mutual funds but confused about how to calculate your profits? Don’t worry! This guide breaks down the process of calculating your mutual fund returns, including the Total Invested Amount, Future Value, Total Profit, and Annualized Return (CAGR). Whether you’re starting with a lump-sum investment or adding money monthly through a Systematic Investment Plan (SIP), we’ve got you covered. Let’s dive in with the formulas, explanations, and a real-world example!

Step 1: Calculate the Total Invested Amount

The Total Invested Amount is the sum of your initial investment (if any) and all the contributions you make over time, such as monthly SIPs.

Formula:

$\text{Total Invested Amount}=\text{Initial Investment}+(\text{Monthly Contribution}\times \text{Number of Months})$

Step 2: Calculate the Future Value

The Future Value (FV) tells you how much your investment will be worth after earning returns over the investment period. Since mutual funds often involve both a lump-sum investment and monthly SIPs, we calculate the future value for each part separately.

Future Value of Lump-Sum Investment

For the initial lump-sum investment, we use the compound interest formula, assuming the returns are compounded monthly (common for mutual funds).

$F{V}_{\text{lump}}=P\times {\left(1+\frac{r}{n}\right)}^{n\times t}$

Where:

• ( P ) = Initial Investment
• ( r ) = Annual Return Rate (as a decimal)
• ( n ) = Number of times interest is compounded per year (12 for monthly)
• ( t ) = Investment duration in years

Future Value of SIP (Monthly Contributions)

For monthly SIP contributions, we use the future value of an ordinary annuity formula, as you’re adding money at the end of each month.

$F{V}_{\text{SIP}}=M\times \frac{{\left(1+\frac{r}{n}\right)}^{n\times t}-1}{\frac{r}{n}}$

Where:

• ( M ) = Monthly Contribution
• ( r ) = Annual Return Rate (as a decimal)
• ( n ) = Number of times interest is compounded per year (12 for monthly)
• ( t ) = Investment duration in years

The Total Future Value is the sum of the lump-sum and SIP future values:

$F{V}_{\text{total}}=F{V}_{\text{lump}}+F{V}_{\text{SIP}}$

Step 3: Calculate the Total Profit

The Total Profit is simply the difference between the Future Value and the Total Invested Amount.

$\text{Total Profit}=F{V}_{\text{total}}-\text{Total Invested Amount}$

Step 4: Calculate the Annualized Return (CAGR)

The Compound Annual Growth Rate (CAGR) gives you the effective annual return rate, accounting for the fact that SIP contributions are made over time. It’s a great way to measure the performance of your investment.

$\text{CAGR}={\left(\frac{F{V}_{\text{total}}}{\text{Total Invested Amount}}\right)}^{\frac{1}{t}}-1$

Where:

• ( $F{V}_{\text{total}}$) = Total Future Value
• ( $\text{Total Invested Amount}$ ) = Total amount invested
• ( $t$ ) = Investment duration in years

Note: The CAGR will often be lower than the expected annual return rate for SIPs because you’re investing money gradually over time, not all at once.

Example: Calculating Mutual Fund Profit

Let’s put this into action with a real-world example. Suppose you invest ₹10,000 initially, contribute ₹500 monthly, expect a 12% annual return, and invest for 10 years. Here’s how it breaks down:

Total Invested Amount:

• Initial Investment = ₹10,000
• Monthly Contribution = ₹500
• Duration = 10 years = 120 months
• Total Invested Amount = ₹10,000 + (₹500 × 120) = ₹10,000 + ₹60,000 = ₹70,000

​​​​​​​Future Value of Lump-Sum:

$F{V}_{\text{lump}}=10,000\times {\left(1+\frac{0.12}{12}\right)}^{12\times 10}$

$=10,000\times (1.01{)}^{120}\approx 10,000\times 3.3004\approx \text{₹}33,004$

Future Value of SIP:

$F{V}_{\text{SIP}}=500\times \frac{(1.01{)}^{120}-1}{0.01}$

$\approx 500\times \frac{3.3004-1}{0.01}=500\times 230.04\approx \text{₹}115,020$

Total Future Value:

$F{V}_{\text{total}}=33,004+115,020=\text{₹}148,024$

Total Profit:

$\text{Total Profit}=148,024-70,000=\text{₹}78,024$

Annualized Return (CAGR):

$\text{CAGR}={\left(\frac{148,024}{70,000}\right)}^{\frac{1}{10}}-1\approx (2.1146{)}^{0.1}-1\approx 0.0779\approx 7.79\text{\%}$

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Why These Calculations Matter

Understanding these calculations helps you plan your investments better. The Total Invested Amount shows how much you’ve put in, the Future Value shows what you’ll get back, the Total Profit is your actual gain, and the CAGR tells you how efficiently your money is growing annually. Bhai, with this knowledge, you can compare different mutual funds and make smarter investment decisions!