How to Use a Mutual Fund Calculator to Plan Your Financial Goals

March 25, 2023 Mutual Fund

Every individual has some or the other financial goals that are unique to them and their financial needs. You may have a mix of short-term, mid-term and long-term goals. You may want to own a house, buy a luxury car, fund your child’s education and wedding expenses, or build a retirement corpus for your golden years. You see, accomplishing each of these goals requires a certain amount of money.

Considering the uncertainty in the current environment, it is prudent to adopt the save now and buy later (SNBL) approach rather than the buy now pay later (BNPL) strategy with loan EMIs and credit cards. In simple words, resist the urge to seek instant gratification out of fear of missing out and instead embrace the concept of delayed gratification. Saving is necessary to meet financial goals, but savings alone will not ensure success in your goals. You need to invest your savings in the right instruments to achieve your goals.

Moreover, with rising inflation, investment in traditional instruments might not live up to your expectations. This is where mutual fund investments can be advantageous and are regarded as one of the ideal ways to achieve your financial goals. A variety of schemes are available across mutual funds to meet the diverse needs of investors. Whether you are a conservative or aggressive investor, have a short-term or long-term goal, or have a small or large amount to invest, the mutual fund basket has something for everyone. To achieve your goals, you may employ a variety of mutual funds with various investment objectives. Your life goals are important, and identifying the target amount to achieve these goals is equally important.

Planning your goals on time and investing in worthy mutual funds that are aligned with them can help you become financially secure in the future. For this, you need to channelise your current financial investments in such a manner that it generates returns over a period that fulfils your targeted goals. Notably, there are different types of tools and calculators, like the Mutual Fund Calculator, to plan your mutual fund investments for various goals.

What Is a Mutual Fund Calculator?

A specific tool designed to calculate the return on your mutual fund investments is indeed the mutual fund calculator. It assists you in determining how much money you should put into mutual funds to accomplish a specific goal over a specific time frame. It is a convenient platform that is simple to use and empowers investors by calculating complex calculations within no time. It produces a precise and timely conclusion for the investment’s future value.

The mutual fund calculator gives you an idea of the maturity value of the mutual fund investment, even before you invest the money. It allows you to budget for expenses and apportion a certain sum of money for investment purposes to achieve your financial goals. When it comes to investing in mutual funds, you have two options, either invest a Lumpsum amount or choose a Systematic Investment Plan (SIP). Now, while using the mutual fund calculator, the future value of your investments may vary depending on the nature of the investment, i.e., Lumpsum or SIP.

Mutual Fund Calculator (Lumpsum): The mutual fund calculator has a formula box where you input details like the lumpsum amount of the investment you are willing to invest, the expected rate of return and the investment horizon required to achieve your specific goals.
(Source: PersonalFN’s MF Calculator)
Mutual Fund SIP Calculator: Breaking down a large sum of money into smaller monthly investments is the main objective of the Systematic Investment Plan (SIP), making it more convenient for individual investors. In case the nature of the investment is via SIP, you select the SIP amount, frequency, time of the investment, and the expected rate of return. The mutual fund calculator shows you the value of the investment at maturity.

[SIP Calculator]
(Source: PersonalFN’s SIP Calculator)
How mutual fund calculator helps you to plan your financial goals

Before you invest in a mutual fund scheme, it is a good practice to assess your return on investment. A mutual fund calculator is the ideal tool for this task as it’s simple and easy to use. A mutual fund calculator will provide you with the total estimate for different investment horizons. You can use it to plan your upcoming investment strategy based on the anticipated returns.

The benefits of using a mutual fund return calculator are as follows:
- ✓ Enables investment planning on the go as it is an online tool that you can access from anywhere.
- ✓ It saves your time and avoids mistakes that may occur when performing complex calculations manually.
- ✓ Offers a reasonable estimation of your return on investment.
For instance, consider that you are investing with a goal to purchase a home. You input the data and notice your investment value falls a little short of the value of the home you aim to purchase. Depending on your preferences, you can alter either of the variables-the investment amount or the investment horizon-to see how you can modify your investment plan to hit your goal.

Let us understand with examples of some common financial goals:
Short-term Goals

Short-term goals are something that you aim for in the near future, goals that you would want to accomplish in 1 -2 years time. You could pick many things as your short-term financial goals; for example, you can save for a vacation, gadgets, pay off a debt, etc.

If you plan to buy an iPhone in the next year, which currently costs around Rs 1 lac, here’s how you can calculate the amount required to be invested by you:

As you can see, to accumulate the amount required to achieve your short-term goal, including inflation or any rise in the price of the product, you need to invest around Rs 1.10 lacs in mutual funds via the SIP route or Lumpsum as per your convenience.
Mid-term Goals

Mid-term goals are something that you wish for in the next 3 to 5 years. This may include important goals like saving for a down payment to buy a car/house, saving for marriage, paying off previous loans (any), or to the extent of planning for a business capital too.

For instance, if you plan to buy a car that costs around Rs 5 lacs, here’s how you can calculate:

In order to accumulate the amount required to buy your desired car, including inflation or any rise in the price of the product, you need to invest around Rs 4 lacs for a time frame of 5 years in rewarding mutual funds via SIP route or Lumpsum as per your convenience.
Long-term Goals

Long-term goals are the ones that you think will take you longer to achieve; however, it has to be very systematic and organised. This may include planning for your children’s future, their education or saving for your retirement, taking your family on a world tour and so on.

If you are 35 years old and plan to invest towards your retirement corpus, which is estimated to be around Rs 2 crore, here’s how the Mutual Fund calculator will help you:

To achieve the retirement corpus amount at the time of your retirement, you need to invest around Rs 20 lacs for a time frame of 25 years (years until retirement) in suitable mutual funds via SIP route or Lumpsum as per your convenience.