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# Understanding mutual fund calculator and ROI calculations

What is a mutual fund calculator?
A mutual fund calculator is built to help calculate the returns from the mutual fund investments. You get the flexibility to calculate the maturity value of an investment irrespective of whether you invest in a lump sum amount or through the SIP (Systematic Investment Plan). It is a smart financial goal planner that helps you get an idea of a fund’s return value before you invest in it. It helps you to budget for various expenses while achieving your financial goals.

There are two ways of investing in mutual funds – you can either invest through a SIP or invest a lump sum amount. When it comes to a lump sum investment, you can invest a considerable amount from your disposable income in a scheme. You can also invest the gains you get from the sale of an asset or through an inheritance. However, investing a lump sum usually involves higher risks.

On the other hand, when it comes to a SIP (Systematic Investment Plan), you can 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 continuously without needing to worry about the perfect time to enter the market. In this case, you may also get the benefits of rupee cost averaging while enjoying the power of compounding.

The mutual fund calculator usually has a formula box where one can select the nature of the investment that they are interested in. As mentioned above, it can be a lump sum investment or a SIP investment. You just need to select the amount of investment, rate of return, and the duration of the investment to get the final maturity amount. For example, in the case of a mutual fund sip calculator, all you have to do is enter the SIP amount, duration & frequency of the SIP to calculate the maturity amount for an estimated rate of return on your investment.

How does a mutual fund calculator work?

In the case of a one-time investment, you can calculate the future value of the investment using the formula:

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

Present Value (PV) is the lump-sum amount
r is the estimated rate of return
n is the duration of the investment (number of years)

While in the case of SIP investment, you calculate the maturity value of a SIP investment using the formula:

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

FV is the future value/the amount you get at maturity
P is the amount you invest through SIP
i is the compounded rate of return
n is the duration of the investment (number of months)
r is the expected rate of return

Irrespective of whether you are investing a lump sum amount or going through the SIP route, one should always take a clever path and use a mutual fund calculator to evaluate the returns before investing.