How to Calculate Mutual Fund Returns using Excel Calculator [VIDEO]

I get many queries on my YouTube Channel regarding how mutual funds works, how to calculate mutual fund returns over a period of time, what is expense ratio, what is NAV, how mutual fund NAV is calculated, what are the best mutual funds and how to select best mutual fund based on goals.

Mutual funds are funds that invest in set of companies to maximize investor's returns. The amount you invest helps you buy units of mutual funds based on NAV (Net Asset Value), which is the price of a single unit of a mutual fund. 

You accumulate mutual fund units over a period of time based on your goals and sell them off with a NAV value that provides you good returns. Also, every mutual fund has a fund manager that tries to maximize your returns by selecting good stocks to invest your money in. We will see all these with the help of examples.

Also, you can find the Mutual Fund Returns Excel Calculator Download link at the bottom of this article.

Watch this video to understand mutual fund investment via lumpsum and SIP method:

WATCH: All Excel Calculators Videos

What are Mutual Funds:

• Mutual Funds are Funds that help you invest in shares of multiple companies
• Unlike stocks investing, mutual funds invests your money in multiple companies thus reducing the risks
• This benefit of mutual funds investing in shares of multiple companies is called Diversification
• Every mutual fund is assigned a Fund Manager who manages that mutual fund
• Fund manager is responsible to select percentage of stocks to invest your money in, to give you better returns
• Unlike stocks investing, you need not have to worry about selecting and monitoring stock performances while investing in mutual funds. Fund manager does the job for you
• Below is the screenshot of the portfolio (list of stocks) of one the popular mutual funds in India

What is NAV (Net Asset Value) of Mutual Fund:

• NAV (Net Asset Value) is the price of single unit of mutual fund
• NAV of every mutual fund is updated on daily basis except on weekends and public holidays in India
• For example, NAV = Rs. 100, and you invest Rs. 10,000 then you get 100 units (Rs. 10,000 / Rs. 100) of this mutual fund in your folio (mutual fund account)
• In this way, your investment value divided by the NAV value will determine the units that will be allocated to you
• NAV of a mutual fund is something you should NOT consider while choosing a mutual fund. It doesn't matter if NAV is Rs. 10 or Rs. 1000
  List of stocks present in mutual fund will determine the fund's future growth
• If the companies in fund's portfolio grows with positive returns, NAV increases with time, else NAV decreases with time. Ideally, the NAV fluctuates over time and over longer run (over 5-7 years), mutual funds are believed to give good returns

Also Read: 20 Years SIP Returns Calculation in Excel

How Mutual Funds Work:

• As mentioned above, you invest certain amount in mutual fund, and based on NAV, required number of units are allocated to you
• Similarly, whenever you want to sell the mutual fund units once your goal is achieved, you sell off required units based on latest NAV and get the amount
• Let's say you bought 100 units at NAV = Rs. 100 by depositing Rs. 10,000. After 1 year the NAV increases to Rs. 110 and you want to sell the mutual fund units. So you can sell at the NAV value of Rs. 110 and get Rs. 11,000 (100 Units multiplied by Rs. 110 NAV). This gave profit of Rs. 1000

Always remember to invest in mutual funds with a goal in mind. Goal must be time specific and realistic.

Some goal examples can be to buy a new car, to save for child's education or to accumulate retirement fund.

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What is Expense Ratio:

Expense ratio is a small percentage taken by AMC (Asset Management Company) to manage your funds. You need not have to pay additionally as a part of Expense Ratio.

Expense Ratio amount is recovered from your profits that you make. Usually, expense ratio of regular mutual funds are high compared to those of direct mutual funds. You can get details of expense ratio of every fund on the mutual fund page.

SIP Returns Calculator Excel:

Lump sum vs SIP Investment:

• Lump sum Investing: You deposit a one time amount as a lump sum investment in mutual fund
• SIP Investing: You deposit a fixed amount regularly every month which is called SIP (Systematic Investment Planning)
• In lump sum investing, you invest entire amount just once, and the units allotted to you will be based on the NAV value on the day of investment
• In SIP, you invest regularly every month and the number of units are allotted to you every month based on the ups and downs of NAV values. This helps you get the advantage of Rupee Cost Averaging
• When we see returns, lump sum investing will give you more returns compared to SIP, but lump sum investing also has high risk compared to SIP

Mutual Fund Categories:

• Every mutual fund has 2 categories: Regular and Direct
• Both regular and direct mutual fund have almost same set of stocks under their portfolio
• Expense Ratio: Expense ratio of regular mutual fund is high compared to direct mutual fund
• Returns: Direct mutual fund gives you higher returns compared to regular mutual fund
• You should go for direct mutual fund to get better returns

Also Read: Home Loan EMI Calculation method Excel Calculator with Video

Types of Mutual Funds:

• There are 3 types of mutual funds: Equity, Debt and Hybrid mutual funds
• Equity mutual fund: Mutual funds that invest in equities - shares of companies. These mutual funds high risk but also gives you high returns
• Debt mutual fund: Mutual funds that invest in bonds or instruments. They have low risk and low returns
• Hybrid mutual fund: Mutual funds that invest in a combination of Equity and Debt instruments. They have medium risk and medium returns
• Based on your risk appetite and your goals, you can choose between above categories of mutual funds

Things to remember before investing in Mutual Fund:

• While you are searching for a good mutual fund, you should see how the fund has performed in past
• You should also see the expense ratio of the fund and how much money is invested in the fund which is called AUM (Asset under management). Lower the expense ratio of the fund, more returns you'll receive
• You should only invest in Direct mutual funds for better returns which also have low expense ratio compared to their regular fund counterpart
• Remember to link your mutual funds investments with goals. And once your goal is achieved, you can stop investing and reap the benefits
• Never book losses in mutual funds. If the market is down, wait for the market to come up so that you are in profit
• It is always better to divide your money and invest via SIP (Systematic Investment Planning) compared to investing as lump sum.
  Never try to time the market to get best returns.
• If someone says they can maximize your returns and ask you to lend them your money, just run away and never look back

Some more Videos:

DOWNLOAD MUTUAL FUND RETURNS EXCEL CALCULATOR

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