Calculating Mutual Fund SIP Returns: Here's How

 

An SIP or a systematic investment plan lets you invest money regularly. The power of compounding then helps to grow this fund to a significant corpus over time. SIP is a simple choice, ideal for anyone who is new to the investment world and does not have a high risk appetite. It is perfect for Gen Z or millennials since the procedure can be automated. The money gets deducted from their account at specific intervals. One can begin with ₹500 and further contributions can be made weekly, monthly, quarterly or in a lump sum.  
It is a well-known fact that SIPs are safe, convenient and easy to operate. But have you ever wondered how to calculate mutual fund SIP returns? Here’s a look.

Point-to-Point Method

This is also known as Absolute Return and is a straightforward method. It helps you calculate the returns from the start to the end point of the mutual fund investment. The formula is:

Absolute Return = (Present NAV – Initial NAV) / Initial NAV × 100

This is the preferred method when the holding period is less than 12 months. It has been mandated by the SEBI or Securities and Exchange Board of India. But a drawback here is that it does not consider the investment tenure or the holding time. Yet you can learn about the pace in which the investment is garnering a specific return percentage. There are different mutual fund SIP calculators and tools online that can help you figure out the returns.

Compounded Annual Growth Rate (CAGR)

It helps to calculate lump sum investment over a period of more than 12 months. Say, you had invested ₹1 lakh in a scheme in 2015 with ₹20 as NAV. After 6 years in 2021, the NAV may have reached ₹50. Use the value of investment to calculate CAGR return instead of NAV.

The average growth of investment can be calculated with:
 {[(Present NAV / Initial NAV) ^ (1 / number of years)] −1} × 100

 

The following formula will be applicable if the holding period is in months:

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

You can calculate on an excel sheet using the following formula:
=RRI (Nper, PV, IV)

 

Simple Annualised Return

This method helps to calculate simple returns on your initial investment. You have a clear idea of how much you could have generated if you stayed invested for a year. The formula:

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

This is also known as the effective annual yield. It is actually extrapolating the returns rather than offering a true picture assuming that the investment has grown at a constant rate. Look for a lump sum SIP calculator or talk to a financial expert for better clarity on the returns.

Never start an investment blindly. Learn the risks and expected returns with the help of a Systematic Investment Plan Calculator, know how to calculate mutual fund SIP returns and consult a financial expert for an informed decision.