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When one thinks of investing, mutual funds pop up usually as their first thought. When investing in mutual funds, there are a lot of questions that take over your mind. It is normal to be curious about what is the right amount to invest, how much money can you earn as returns from your investments, so on and so forth.
The easiest answer to all your mutual fund related questions is a mutual fund calculator. It will help you evaluate the future valuation of your lumpsum investment today. The calculator is easy to use and can help you get answers about your mutual fund investments in an instant. This will help you decide whether you want to continue or switch to another scheme if it is not yielding the returns you seek.
Let us start with understanding mutual funds and the mutual fund calculator in a little detail:
Mutual funds are professionally handled investment schemes. They are run by asset management companies that act as a mediator for all retail investors. This asset management company or AMC collects money from several different investors and uses this pool of money to invest in bonds, equity shares, money market instruments or other kinds of securities. In proportion to the investment made by each of the investors, they are allotted a specific number of units. As a result, the investor is called a unitholder. This unitholder has a share in the income, profits, losses as well as the expenses of the fund that is in proportion to the investment they have made in the fund.
People often get scared of investing in mutual funds, thinking they are very complicated. But that is not the case. One can easily learn the nitty gritty details of investing in mutual funds by anyone interested in growing their investments. A mutual fund calculator is a tool that guides the investors through the maze of investing in mutual funds with the help of its advanced algorithm that calculates results on what to expect as returns on investments along with other necessary details.
The calculator can be used by everyone, that too for free from the comfort of their home as everything is available online. Mutual fund calculator guides one in making the right investment decisions depending upon the financial and investment goals of the investor.
Manually computing the returns earned on mutual funds at different rates of interest is certainly complicated. This could be especially difficult for someone who has no financial education or dreads complex calculations. A MF calculator performs these intricate calculations for you in just a second, making investments easy. The mutual fund calculator generates results without any personal biases or hidden motives, thus providing accurate data that helps investors make wise decisions regarding their finances.
As stated earlier, using the calculator is extremely easy, all you need is to put in the required information like:
Now the mutual fund calculator will calculate the returns of your investment. These calculators calculate the returns in a number of different ways as discussed below:
Absolute Return= (Current Value - Initial Value)/ Initial Value * 100
CAGR= [(Final Value/ Initial Value) ^ (1/N)] - 1
Where, Final Value= The value on the day of redemption
Initial Value= The investment amount
N= Investment tenure in years
Here is an example to explain how CAGR works:
If for instance someone invests an amount of AED 10,000 for a period of 5 years in mutual funds, they will get AED 20,000. Using the formula for calculating CAGR, the mutual fund calculator will work as following:
CAGR= [(20000/ 10000) ^ (1/ 5)] - 1
= 14.87 %
In that case, the calculator uses a complicated method of internal rate of return or IRR. This method can be applied over the Excel sheet using the function of XIRR. The aggregates CAGRs over separate time intervals will give a single rate of return for all the investments.
The Bottom Line
The market is full of mutual funds that can prove to be confusing for someone who wants to pick one to invest in. Similarly, there are a lot of asset management companies and it can be hard to find the one that is best for you. Before making decisions about choosing a mutual fund from a certain class, one has to evaluate the risk perception as well as the expected returns. These decisions will be made a lot easier if you simply use a mutual fund calculator.