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How do I calculate the return from a mutual fund invested as a monthly SIP of Rs. 5000 over a period of 3 years at a return rate of 20.4% per annum?

The projected amount for the same is calculated by this website. However, I am not being able to calculate the same myself by hand.

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I used SIP calculator which returns Rs. 249660

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A recurring deposit calculator returns Rs. 242754

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    what value do you get when you try to do the calculation? – mhoran_psprep Feb 28 at 11:06
  • I'm not sure what "return" you're looking for. You're already given the return of the fund, and you're contributing the same amount periodically, so return on what? – D Stanley Feb 28 at 14:19
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    The rate appears to be rounded in display. Use 20.41% e.g. in Excel =FV((1+20.41/100)^(1/12)-1,36,-5000) produces 239059. All explained in my answer. – Chris Degnen Apr 3 at 14:28
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    Your second SIP calculator is using a different calculation, i.e. in Excel =FV(20.4/100/12,36,-5000,0,1) producing 249660. The main differences are that the interest rate here is nominal compounded monthly rather than effective annual rate, and the payments are at month-start rather than month-end. Presumably the Mirae calculator uses month-end payments because the lump sum calculates from month-start and they don't want a SIP payment at the same time as the lump sum, but it means the last SIP payment accrues no interest. – Chris Degnen Apr 3 at 19:42
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    The third calculator uses an effective annual rate and month-start payments, i.e. in Excel =FV((1+20.4/100)^(1/12)-1,36,-5000,0,1) producing 242754. – Chris Degnen Apr 3 at 19:43
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I couldn't see the fund in your screenshot, but here is the one from the web link.

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The one-year return can be calculated like so.

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Also using a formula

a = d ((1 + r)^n - 1)/r

where

a is the future amount
d is the monthly payment (paid at month-end)
n is the number of months
r is the monthly interest rate

The annual interest rate is 14.4%

r = (1 + 14.4/100)^(1/12) - 1 = 0.011274

n = 12
d = 5000

a = d ((1 + r)^n - 1)/r = 63863.84

The same in Excel

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The 3 year result is a little out, presumably some rounding inaccuracy

r = (1 + 19.3/100)^(1/12) - 1 = 0.0148146

n = 36
d = 5000

a = d ((1 + r)^n - 1)/r =  235556.95

A 3 year annualised return of 19.26% obtains the website figure, shown below.

r = (1 + 19.26/100)^(1/12) - 1 = 0.0147862

n = 36
d = 5000

a = d ((1 + r)^n - 1)/r = 235431.40

I would guess the interest rate in the calculations is 19.26% but the website shows the figure rounded to one decimal place, as 19.3%.

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The biggest problem is that they are using historical returns, that means that they are using.

  • 1.8% for one year
  • 20.4% for 3 years.

But you aren't modeling a 180,000 investment for three years. You have a 5,000 investment for 36 months another 5,000 for 35 months...

You have to know the interest rates for each of the 36 months....but you don't know them

  • Not sure I understood. How do I know the interest rates for each of the 36 months? – Holmes.Sherlock Mar 4 at 4:51
  • I added a few words to the end of my answer. – mhoran_psprep Mar 4 at 11:13

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