Mutual Fund Calculator
The mutual fund calculator can be used to estimate the ending balance and net return of mutual funds. It can also calculate the internal rate of return (IRR) after accounting for charges and fees.
A mutual fund is an investment fund that pools money from many investors to purchase assets such as stocks, bonds, or other securities. Each investor owns shares of the mutual fund, which represent a proportional interest in the fund's holding assets. At the end of each trading day, the net asset value (NAV), or per-share value, of the mutual fund is calculated by dividing the total value of the fund's assets by the number of shares outstanding. When investors purchase or sell shares of a mutual fund, the transactions are executed at the NAV of the trading day on which the order is placed, provided the order is submitted within the required time frame.
Mutual funds normally have stated investment objectives, such as growth, income, capital preservation, or a combination of these goals. Based on these objectives, mutual funds can be defined and categorized by the primary types of assets they hold, including money market funds, bond (fixed-income) funds, stock (equity) funds, hybrid funds, and more. They may also be categorized by management style, such as passively managed funds that track the performance of an index (for example, a stock or bond market index), or actively managed funds, which seek to outperform a specific benchmark. In addition, mutual funds may be categorized by their structure, including open-end funds, closed-end funds, and unit investment trusts.
Mutual funds are a very popular choice among investors because they generally offer diversification, low investment minimums, simplicity, liquidity, and professional management. Mutual funds constitute the largest category of investment funds globally. Today, trillions of dollars are managed by mutual funds worldwide, with more than 50% of those in the United States. They are widely used in retirement accounts, long-term savings plans, diversified investment portfolios, and various other purposes.
Mutual fund fees and expenses
Mutual funds are managed by fund managers or investment teams based on the fund's objectives and categories. Inevitably, investing in mutual funds comes with costs. There are many different fees and expenses associated with mutual fund investments, which can generally be grouped into one-time transaction fees and ongoing periodic fees.
Transaction Fees
Many mutual funds impose sales charges, also known as loads, which are commissions paid when buying or selling fund shares. Depending on when the charges are applied, they can be categorized as:
Sales charge on purchase (front-end load)—This is a fee charged upfront when purchasing the fund. It is typically a percentage of the investment amount and directly reduces the amount invested in the fund. For example, if an investor invests $20,000 in a mutual fund with a 5% front-end sales charge, the sales charge is $1,000, and the actual amount used to purchase fund shares is $19,000.
Deferred sales charge (back-end load)—A deferred sales charge is a fee charged when redeeming or selling fund shares. It is typically calculated as a percentage of the lesser of the original investment amount or the fund's value at redemption. For example, if an investor invests $20,000 in a mutual fund with a 5% deferred sales charge and the investment grows to $30,000 at the time of sale, the charge is calculated based on the original investment of $20,000, resulting in a $1,000 fee. The investor would receive $29,000. If, instead, the investment declines in value to $10,000 at the time of sale, the deferred sales charge would be calculated based on the fund's value at redemption, resulting in a fee of $500. In this case, the investor would receive $9,500.
To incentivize longer holding, many mutual funds implement a contingent deferred sales charge (CDSC), under which the back-end sales charge decreases over time and may eventually be reduced to zero if the fund is held long enough. For example, a CDSC might start at 5% and decrease by 1% for each year the fund is held. If an investor sells after holding the fund for three years, the deferred sales charge would be 2%.
Mutual funds normally charge either a front-end or a deferred sales charge, but rarely both. Some funds are marketed as no-load funds, meaning they do not charge sales.
In addition to sales charges, mutual funds may impose other one-time fees, such as purchase fees, redemption fees, exchange fees, and account maintenance fees.
Periodic Fees
Periodic fees are ongoing fees charged while an investor holds the mutual fund. These fees are mainly used to cover the fund's operating expenses and are typically a percentage of the fund's average net asset value. They generally include management fees, distribution and service fees (12b-1 fees in the U.S.), and other operating expenses. Together, the periodic fees are commonly reflected as the fund's expense ratio.
The amount of periodic fees depends heavily on the type of fund. Actively managed funds normally charge higher fees than passive index funds due to the higher involvement of the management team. Generally, expense ratio rarely exceeds 2% per year even for actively managed mutual funds. Some passive index mutual funds may have very low expense ratios, such as 0.1% or less.
Fees and expenses can have a significant impact on a mutual fund's total return. It is important for investors to consider not only the nominal returns of a fund, but also its fees, expenses, volatilities, and other characteristics when investing. Our calculator above can estimate the net internal rate of return (IRR) of a mutual fund by accounting for both investment performance and associated fees and expenses, providing a more comprehensive measure of the fund performance.