How to Calculate Mutual Fund Returns

Have you invested in Mutual Funds? What has been your ROI (Return on Investment)? How do you calculate mutual fund returns?

Give us a few minutes of your precious time and read this piece; You will learn, how to calculate mutual fund returns with worked out examples and formula for calculating different types of mutual fund returns.

You will also get to know how to calculate profit percentage in mutual fund for investments done for different periods.

What is the ‘return’ on a mutual fund scheme?

In simple terms, ‘return’ is the yield that your investment generates over a period of time. It is the percentage increase or decrease in the value of the investment in that period. The return on a mutual fund for a particular predetermined period is calculated using the below formula:

Current NAV – Previous or Historical NAV
——————————————————————— x 100
Previous or Historical NAV

 

Now, what is NAV?

According to SEBI, the performance of a particular scheme of a mutual fund is denoted by Net Asset Value (NAV). NAV is the market value of the securities held by the scheme. Since the market value of securities changes every day, NAV of a scheme also varies on day to day basis.

The NAV per unit is the market value of securities of a scheme divided by the total number of units of the scheme on any particular date.

Purchase NAV and sale NAV are two important numbers for mutual fund profit calculation.

 

Example: How to calculate NAV of mutual fund

 

If the market value of securities of a mutual fund scheme is Rs 300 lakhs and the mutual fund has issued 20 lakh units of Rs. 10 each to the investors, then the NAV per unit of the fund is Rs.15.

i.e. 300 Lakhs / 20 Lakhs = 15

 

Example: Mutual Fund Return on Investment Calculation

 

If the current NAV is 15 and the previous NAV was 13.5,

the return would be (15 – 13.5) x 100/13.5 = 150/13.5 = 11.11% over the time period.

If the time period is in months say 3 months or in years say 2, or in days say 100, in that case, the above formula can be used as

 

Current NAV – Historical NAV
————————————— x 100 x 12/(No. of months) or 1/(No. of years) or 365/(No. of days)
Previous NAV

 

The above example will produce returns of 11.11 x 4 = 44.44% (for 3 months); or 5.55% for 2 years or 40.55% for a period of 100 days.

Absolute Returns

After knowing the average returns of a mutual fund, you may still want to know the absolute returns of the fund because it gives you clearer indication of the returns generated. Absolute Returns refers to the returns that a fund achieves over a period of time.

It measures the percentage appreciation or depreciation in the value of the NAV over a certain time frame.

The Formula for calculation of the absolute returns of a Mutual Fund:

(Current NAV – Purchase NAV or Historical NAV) x 100/(Purchase NAV or Historical NAV)

 

Example for calculation of the absolute returns of a Mutual Fund:

 

If you have purchased it at Rs.11 per unit and after 3 years, if NAV appreciates to Rs. 15 per unit, here the absolute return is 36.36% as calculated below:

(15 – 11) x 100 / 11 = 36.36%

Compounded Annual Growth Rate (CAGR) or Annualised Return

 

You may use CAGR to calculate returns for the period beyond one year for your investment in MF. The CAGR returns are annualized returns, with the compounding effect. Let us see how to calculate annualised return in mutual fund.

The formula for Annualised Returns:

{Current NAV/ Purchase NAV} ^ (1/no. of years) or (365/ no. of days) – 1

 

Example: Annualized Return Calculation

 

The purchase NAV of your MF is Rs.15 per unit. After two years NAV rises to Rs.25.

Then CAGR / annualized returns will be 29.09% i.e. [(25/15)^(1/2) -1].

The CAGR / annualized return calculates the growth rate of investment every year with the compounding effect. In the above example, in case your investment was Rs1500 which has appreciated by 29.09% each year to become Rs.2500 at the end of two years.

Absolute Returns Vs Annualized Returns

When you are calculating returns for less than a year, you can calculate absolute return. For calculating mutual fund returns for an investment period of more than a year then you can use annualised returns.

When you need to calculate point to point returns, you can use absolute return. When you want to calculate the average yearly return, then you can use annualised return.

Returns on SIP (Systematic Investment Plans)

Suppose you have invested Rs. 2000 every month for the last 1 year and value of your investment rose to Rs. 26000 due to appreciation in NAV. The following table illustrates your SIP investment:

Jan 1, 2017	2000
Feb 1, 2017	2000
Mar 1, 2017	2000
Apr 1, 2017	2000
May 1, 2017	2000
Jun 1, 2017	2000
Jul 1, 2017	2000
Aug 1, 2017	2000
Sep 1, 2017	2000
Oct 1, 2017	2000
Nov 1, 2017	2000
Dec 1, 2017	2000
Jan 1, 2018	Rs. 26000
XIRR	15.65%
Total Amount Invested	Rs. 24000

As the investor invests Rs.2000 per month for 1 year, the absolute returns formula will not work as the money is invested for different periods of time.

The IRR (Internal Rate of return) considers the time value of money for investment made at different point of time. Therefore, we may use XIRR returns (which is nothing but IRR) in MS Excel to find out the return on SIP in the above example, which is 15.65%

You now know very simple ways to calculate returns on Mutual Fund investments. To know the NAVs of MF schemes, you may have to go to the website of AMFI (The Association of Mutual Funds in India) at www.amfiindia.com.

Have you tried any other way to calculate mutual fund returns? What result did you get? How much time did it consume? Kindly share your views in the comment box.

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