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How to Calculate your Mutual Funds Returns - SIP and Lumpsum Investments


There are two ways to invest in a mutual fund. You can invest by either making a lumpsum investment or setting up a Systematic Investment Plan (SIP) for regular investments.

Whether you are investing in mutual funds through a lump sum, SIP or a mix of the two routes, you all would want to invest in mutual funds that can give expected returns.

But have you wondered how mutual fund returns are calculated? And does the calculation differ between lumpsum investment and regular investments?

When calculating mutual funds returns, it is crucial to note the initial investment and redemption dates.

In this article, you will look at the different ways to calculate mutual fund returns.

Point-to-Point or Absolute Returns

It is easy to calculate absolute returns. All you need is the initial Net Asset Value (NAV) and the present-day NAV. NAV is nothing but the price of one unit of a mutual fund.
Here is the formula to calculate the absolute returns.

Absolute return = (Present NAV – initial NAV) / initial NAV × 100

So, if your initial NAV was 20 and the present NAV is 35, and you had stayed invested for seven months, the absolute returns would be 75%.

Simple Annualised Return

From the previous example, Absolute Returns can be helpful to calculate returns for investments that stayed invested for less than 12 months. But, if you want to check your annual returns, i.e., how much you would have generated if you stayed invested for a year, the simple annualised return can help you do that.
The value of the absolute return is used to calculate the simple annualised return.

Here is the formula

Simple Annualised Return: [(1 + Absolute Rate of Return) ^ (365/number of days)] – 1

If you take the previous example, the annualised return will be
= [(1 + 75%) ^ (365/210)] – 1
= 164%

Compounded Annual Growth Rate (CAGR)

You can use absolute returns and simple annualised returns when the investment period is less than one year. However, to calculate lumpsum investment with an investment period of over 12 months, you can use Compounded Annual Growth Rate (CAGR).
Although your investment will give different returns at different phases, CAGR gives the average annual growth rate.

You can calculate the CAGR on an excel sheet.

Let us take an example to help understand this concept better.

Assume that you had invested ₹1 lakh in a mutual fund scheme in 2015. The initial NAV is ₹20. Now in 2021, i.e. after six years, the NAV has increased to ₹50. You can also use the value of investment to calculate the CAGR return instead of NAV.

So, here’s how you can calculate the average growth of investment:

= {[(Present NAV / Initial NAV) ^ (1 / number of years)] −1} × 100

If the holding period is in months, you can use this formula:

= {[(ending value / beginning value) ^ (12 / number of months)] −1} × 100

You can put the formula in excel to calculate the returns. However, it is easier to calculate the CAGR in excel using the RRI formula.

Here’s the formula:

=RRI (Nper, PV, IV)

Where, Nper = Time in period (calculated in months)
PV = Present Value
IV = Initial Value

Then convert the value into percentage format, and you will get your CAGR.

Extended Internal Rate of Return (XIRR):

Calculating SIP returns can be a little tricky as each investment stays invested for different durations. So, using the above methods may not be a good fit. That’s why we need to use XIRR to calculate the returns from our SIPs.

XIRR is a formula in excel that is used to calculate the internal rate of returns by considering the multiple cash flows.

Here’s what you will need:

  • SIP amount
  • Dates of SIP investments
  • Date of redemption
  • Redemption amount

The formula for XIRR is

XIRR= XIRR (Values, Dates, Guess)

Here are the steps to calculate XIRR in Excel:

  • Make a table with two columns.
  • Then, add dates of investment and the SIP amount in two different columns.
  • Now, add the redemption date and redemption amount in the last row.
  • Use the given XIRR function in Excel.
  • Select the values column to add the values and date column for the date in the formula.
  • You can skip the Guess part.
  • Then convert the value into a percentage or multiply it by 100 to get the XIRR in percentage terms.

And, there you have your returns from SIP.

Thankfully, you don’t have to get into the hassles of manually calculating these returns. There are various calculators and tools available online that can help you calculate these returns easily.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully

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