So it is very important to understand how mutual fund really work so i am going to show you how mutual fund returns work so let’s get started to show you how mutual fund returns are calculated .Phone Pe Loan Offer
hello everyone this is my personal finance academy where i explain everything about money management in layman’s language over the past few years mutual fund has grown as a very popular investment category but when it comes to understanding how mutual fund work very few people have the right knowledge and due to this many people end up making mistake in mutual fund.
How Mutual fund returns work?
I am taking this example of sbi focused equity fund direct plan growth if you scroll down you can see this option of calculate return if you click on this you can see return calculator sip calculator just click on this sip calculator.
Here you can see that let’s say you invested rupees 10 000 then what would be your investment amount so let’s select the sip start date let’s say you started your sip in 1st april 2022 and let’s say you ended your sip on first november 2022 so you want to know what is the return you are getting here you can see that during this process you ended up investing 80 000 rupee and your value is 97 719 and a profit of rupees 17 719 and that’s a 22.15 profit.
Now i will show you how did you get this profit of rupees 17719 for this you need to know the nav of this mutual fund on the date you are investing your money so you are investing rupees 10 000 every month in this particular scheme on first of every month.
How do I get my returns in Mutual Funds?
Like other asset classes, Mutual Funds returns are calculated by computing appreciation in the value of your investment over a period as compared to the initial investment made. Net Asset Value of Mutual Fund indicates its price and is used in calculating returns from your Mutual Fund investments.
So here you started on first april then you invested money on first may then first june and likewise till your first november so let’s identify the nav of the scheme on first of every month let’s record this data as well so just open another sheet and make an entry of month nav investment amount and your final units purchased so you started your sip on first april 2022 then next sip was on first may 2022 and if you just select these two fields and drag it you will get till 1st november so obviously you want it till 1st november 2022.
So let’s identify the nav on each of these dates so if you go back and scroll down here you can see this bar and here on top you can see the nav value so this nav value keeps changing every single day you need to know the nav on 1st april 2022. so if you just check here you can see the nav on 1st april 2022 is 125.26 just record this entry 125.26 next your first may nav is just check here.
Things to consider about mutual funds returns
Here you can see that the nav is not mentioned on first may so in that case you need to consider the nav on the next day so after 30 april it is directly showing the nav on 4th may which is 133.76 so just note it down 133.76 next you need to know the nav on 1st june 2020 so let’s check 1st june 2022 is 139.57 so just record this 139.57 to reduce our time.
i’ve already identified the navs on these dates so here you have got the nav on each of these date now what is the amount that you are investing you have made a sap of rupees 10 000 so just copy and paste it and just change the format to rupee there you go now you need to know how many units you have purchased so for that you just put equal to and divide this money with nav just change the format you don’t want this in rupee just keep plain text so here you can see that you ended up purchasing 79.83 unit of this scheme of sbi focus fund on 1st april 2022.
Compounded Annual Growth Rate (CAGR)
likewise every month when you invest your money you would purchase certain units so if you just drag this field you can see how many units you have purchased let’s do one thing let’s take the total of all the units that you have purchased so your total unit purchased is equal to sum of all these fields and just close it so you ended up purchasing total of 548.98 units of sbi focused fund and what is the total investment amount your total investment amount is equal to your sum of all these field so you ended up investing rupees 80 000.
Now you want to know your latest investment value and what is the latest investment value it is as of 23rd november 2022 so what is the nav as on 23rd november 2022 if you go back and check here you can see your nav is on 23rd november 2022 is 177.67 so just go back and uh just mention latest nav and it is your 177.67 now in order to calculate your investment value you just need to multiply your total units that you have purchased with the latest nav and just hit enter.
Extended Internal Rate of Return
Now this is your investment value just change the format so it is 97 538 rupee now what is the profit you have made your profit is equal to your investment value minus your total investment amount so you have made a profit of rupees 17538 rupee and what is the percentage return your percentage return is equal to your profit divided by investment amount so your percentage return is 21.92 percent and if you go back.
You can see you’ve got a profit of 17719 and what we have calculated is 17538 so we are pretty close to the calculation on money control the reason for slight difference is because we haven’t considered the decimal after two points but i hope you got the idea that how this return on sap investment is calculated now you can see that you’ve got a very good return on your investment and why did you get such a good return because the nav of the scheme kept on increasing .
The question is how does this nav movement work so basically this nav depend upon the underlying securities in the portfolio so if you go back and just scroll down you can see the portfolio for example this particular scheme has invested in 26 stock for example it include your stocks like sdfc bank device lab alphabet inc procter gamble avenue supermart kotak mahindra etc so basically the nav movement would depend upon the movement in the underlying securities or the stock so if the market is increasing.
Then the underlying stock price would increase and that would increase the nav and eventually your return would be good but if the market fall then the stock price would fall and your nav would fall and it would eventually decrease your return and that is the reason why equity investment is wallet time it all depend upon the underlying portfolio so i hope with this video you got an understanding on how your return on sap investment work