# Investment Growth Calculator with monthly contributions

Data Input
Initial Investment in Lump Sum (Rs.)
Monthly Contributions: SIP (Rs./month)
Expected Return (% p.a.)
Holding Time (in years)

Report
 A= Appreciated Amount – Lump Sum (Rs.) B= Appreciated Amount – SIP (Rs.) A+B= Total Appreciated Amount (Rs.)

What is this investment growth calculator all about? It is a simple mutual fund calculator. We can use it to estimate “how much to invest” to build the required corpus. This calculator can also help us to judge “where to invest money” for the corpus building.

Big words, right? I know the calculator is looking rather simplistic, but my words are sounding a bit boastful, right? Yes, it is a simple calculator, no doubt about it. You will find several such calculators on internet. But what unique you will get here is, how to derive answers to important questions using this simple calculator. Which questions?

• How much to invest to build the corpus?
• Where to invest?

To derive the answers to these questions, I will suggest you to use this calculator in a “certain” way. The approach that I will share with you is based on logic. There is no rocket science. It is a basic trick, using which the same simplistic looking calculator can transform itself into a problem solving tool. How? Keep reading please…

## How to use the calculator?

I personally use this ‘tool’ as my mutual fund calculator. I invest majorly through mutual funds. This is one calculator which helps me to take my first steps. How? I start by asking the following two (2) basic questions:

All investment should start with finding the right answers to these two question first. Even if we can find an approximate answers to them, the job is like half-done at the outset itself.

So let’s proceed and review the approach, which we must follow while using this investment growth calculator (or mutual fund calculator) in the most effective way…

### What we want (Goal)?

This is something that we will have to answer the first thing before making any investment. What is the goal? Why we are investing?

Let me give you an example of goal fixing. It is like finalising a mission statement of a company. The goal should be both appealing and specific. One such example can read like this:

Building a retirement corpus of Rs.1.0 Crore, in next 20 years.

From the point of view of our calculator, this goal-value will appear in the last row [see the below infographics].

As a user, what you should do next? Note down your goal in a notepad.

Now, you will have to do multiple iterations (hit and trial) with the calculator to see your desired goal-value in its last row. Keep trying with different sets of the fed-data.

Idea should be to find, which set of the fed-data is generating the goal-value in the last row (Example: Goal of say Rs.1.0 Crore).

The Goal Value (say Rs.1.0 Crore) is ‘what we want’, and the fed-data will establish ‘how to achieve it’.

### How to achieve it (reaching the goal)?

In the above step, we have fixed is the investment goal. But the bigger question will be, how to achieve it? This is one of the big obstacle when it comes to practicing investment successfully. Why I say so?

Because using an investment growth calculator is one thing, and putting its knowledge into practice is another.

Plethora of such investment growth calculators are available on internet. We also like to play with such calculators. But does such play’s adds value in our life? Probably no. Why? Because we do not know how to derive a meaningful conclusion out of the numbers generated by the calculator.

How to derive a meaningful conclusion? This is what we will discuss now.

We fix a goal, this brings us one step closer to it. But how to achieve this goal? By answering the following two questions:

1. How much to invest, to reach the goal?
2. Where to invest, to reach the goal?

### How much to invest?

There are two ways one can invest their money?

1. Invest in Lump-sum.
2. Invest via monthly contributions.

Let’s take an example to understand this point. Suppose one wants to build a corpus of say Rs.1.0 Crore in 20 years. In this case, how the calculator will say, how much to invest in lump-sum, and how much in monthly contributions?

To answer this, the person should try, with few combination of numbers. Idea should be to identify which combination is leading towards the goal value (say Rs.1.0 Crore).

In our stated example, the goal was to build a corpus of Rs.1.0 Crore in 20 years. In this case the combination of numbers which led us to our result was these:

• Lump-Sum Investment of Rs.100,000.
• Monthly Contribution of Rs.5,000.

This answers our important question, “how much to invest”.

There is one additional data (expected returns), among the combination of numbers, which we will discuss in next point of “where to invest“. So let’s read further…

### Where to invest?

This calculator will not be able to tell you ‘which investment option’ is suitable to build the corpus. But it can certainly point specifically towards it. How?

For that we will have to look at the expected return numbers that is used to generate the goal-value (say Rs.1.0 Crore).

But how investment returns numbers will tell us where to invest the money? Expected returns alone will not help. But when it is compared with a data base, it will become useful.

Which data base? Investment Returns Table as shown below:

How this table will help?

The calculator is showing that, a return of 15.6% p.a. will be required to build a corpus of Rs.1.0 in 20 years. Now, look into the investment returns table. Find, which listed investment option can generate a minimum returns of 15.6% p.a.

Form the example table shown above, “mid cap mutual fund” looks most reliable.

I will suggest my readers to self-prepare one such “investment return table” for personal use. I have one such table for myself. It has more constituents than this.

[You can also read my more detailed report on investment options in India. I will also suggest you to read my blog on types of mutual funds in India. This blog post also talks about the potential returns that can be generated by different types of mutual funds]

So this way, in collaboration with a “investment return table”, our simple calculator can help to single-out the right investment option.

But there is more (depth necessary) into the selection of right investment option. What is it? I will suggest you to read further to know more about it. I am sure you will find it interesting. This will act as an apt final thoughts of this blog post….

## Which is the right investment option?

Investment options which gives highest returns is always the best choice?

Do you agree with this statement? Some might think that, why to invest in a recurring deposit when diversified equity funds are promising nearly double the returns?

This is one dilemma that all investors face every time they are investing. Why there is a dilemma? Because we are always tempted to pick that investment option which is giving the maximum returns. It is really tough to ignore this temptation.

But why not pick the investment which is giving the maximum returns? It also sounds reasonable, right? No it is not. The problem lies in the risk profile of the high return yielding investment options.

High returns comes with the high risk of loss.

What it means by ‘risk of loss’? Possibility to make a loss on the investment during the holding period. There are more chances of losing the invested money (partially), when one invests in ‘high return yielding options’.

Hence, if your calculator is pointing at bank deposits as a reliable investment options, do not opt for equity based mutual funds.

#### Filthy rich people often avoids the risk…

Yes it is true, rich people do not invest their money in risky investment options till it is essential.

Do you know why they do not invest in risky options? Because they can afford to do it. What does it mean?

I will give you an example, to make this point more understandable.

In our above example, the person has the investment goal of building a retirement corpus of Rs.1.0 Crore in 20 years.

What the investment calculator asked the person to do?

• Invest in Lump-Sum: Rs.100,000
• Monthly Contributions: Rs.5,000.
• Investment Option: Mid cap mutual fund (high risk).

Here, the person has to take substantial risk to build a corpus of Rs.1.0 Crore in 20 years. What is the risk? The risk of investing in a ‘mid cap mutual fund’ whose price becomes very volatile in turbulent times.

But a ‘richer‘ person may not take the same risk to build a corpus of Rs.1.0 Crore in 20 years. Why? Because a richer person can afford to invest a higher amount in lump-sum, and also have a higher monthly contribution.

Just for example, let’s consider that the richer person also wants to build a corpus of Rs.1.0 Crore in 20 years. This person can afford to break his investment proceedings as below:

• Invest in Lump-Sum: Rs.300,000
• Monthly Contributions: Rs.15,000.

As the person is able to shelve more funds from his pocket, how much risk shall he take to build a corpus of Rs.1.0 Crore in 20 years? He will be asked to take a very low risk. How? Because the investment calculator is saying that 8% p.a. returns will be enough to build the corpus of Rs.1.0 crore.

It means, the person can afford to invest in a suitable debt based mutual fund, which is almost risk free. In India, debt based mutual funds can easily yield 8% even in long term.

In the context of “right investment options”, I would also like to say a bit about the ‘risk taking capability’ of the investors.

#### What decides ones risk taking capability…

Who can take higher risks?

• People who are young can take more risks.
• People who have more spare cash can take more risks.

Who can take lower risks?

• People who are old can take less risk.
• People who has less spare cash can take lower risk.

When people are young their earning is also low (less spare cash). This way young people can take lower risks. But on flip side, young people has lot of time in hand. They can stay invested for very long term. This increases their risk taking capability. Hence, diversified equity (multi cap funds) becomes useful for them.

When people are comparatively older, their earnings are higher (more spare cash). This way old people can take higher risks. But on flip side, old people has less time in hand. Their investment horizons are shorter. This reduces their risk taking capability. Hence, index based funds becomes useful for aged people.

Hi. I’m Mani, I’m an Engineering graduate who in pursuit of financial independence, has converted into a full time blogger. After working in the corporate world for almost 16+ years, I bid it adieu....read more

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