Investing in mutual funds is a popular choice for individuals looking to grow their wealth over time. However, understanding how to calculate returns on these investments can sometimes seem like a daunting task, especially for those without a background in finance. In this post, we'll break down the process into simple steps using a suitable example to help you grasp the concept easily.
Let's consider an example:
Example 1
Suppose you invested ₹10,000 in a mutual fund scheme five years ago, and today, the value of your investment stands at ₹15,000. Now, let's calculate the returns on your investment.
Step 1: Determine the Initial Investment Amount In our example, the initial investment amount is ₹10,000.
Step 2: Determine the Current Value of Investment The current value of your investment is ₹15,000.
Step 3: Calculate the Absolute Return. Absolute return is simply the difference between the current value of your investment and the initial investment amount. In our case, Absolute Return = Current Value - Initial Investment Absolute Return = ₹15,000 - ₹10,000 Absolute Return = ₹5,000
Step 4: Calculate the Return Percentage To calculate the return percentage, divide the absolute return by the initial investment amount and multiply by 100 to get the percentage.
Return Percentage = (Absolute Return / Initial Investment) * 100
Return Percentage = (₹5,000 / ₹10,000) * 100
Return Percentage = 50%
So, in this example, your investment in the mutual fund has generated a return of 50% over the five-year period.
Understanding how to calculate returns on investment in mutual funds is crucial for assessing the performance of your investments and making informed decisions about your financial future. While this example simplifies the process, it's important to note that actual returns may vary depending on market conditions and the performance of the mutual fund scheme.
At Wealth Trust Capital Services, we are committed to providing our clients with the knowledge and tools they need to navigate the world of investing with confidence. If you have any further questions or need assistance with your investments, don't hesitate to reach out to our team of financial experts. Happy investing!
Example 2
Let's delve into another example to illustrate how to calculate returns on investment in Indian mutual funds, making it even clearer for those new to the world of finance.
Imagine you invested ₹20,000 in a mutual fund scheme three years ago, and today, the value of your investment has grown to ₹25,000. Now, let's calculate the returns on your investment using the same straightforward steps.
Step 1: Determine the Initial Investment Amount In this case, the initial investment amount is ₹20,000.
Step 2: Determine the Current Value of Investment The current value of your investment stands at ₹25,000.
Step 3: Calculate the Absolute Return To find the absolute return, subtract the initial investment amount from the current value of your investment.
Absolute Return = Current Value - Initial Investment
Absolute Return = ₹25,000 - ₹20,000
Absolute Return = ₹5,000
Step 4: Calculate the Return Percentage To calculate the return percentage, divide the absolute return by the initial investment amount and multiply by 100.
Return Percentage = (Absolute Return / Initial Investment) * 100
Return Percentage = (₹5,000 / ₹20,000) * 100
Return Percentage = 25%
So, in this example, your investment in the mutual fund has generated a return of 25% over the three-year period.
By understanding these simple calculations, you can better assess the performance of your mutual fund investments and make informed decisions about your financial future. Remember, while this example simplifies the process, actual returns may vary based on market conditions and the performance of the mutual fund scheme.
At Wealth Trust Capital Services, we are dedicated to empowering individuals with the knowledge and tools they need to succeed in their financial endeavors. If you have any questions or require assistance with your investments, our team of experts is here to help.
Happy investing!
CONTACT US for Queries related to FInancial Planning.
