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Mutual Fund Calculator
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Mutual Fund Comparison

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Explains what mutual funds are and how they work, and helps you forecast a fund's growth and equivalent annual yield.

This free online Mutual Fund Calculator will calculate a fund's after-expense growth and equivalent annual yield. You can then print out the results, including an annual growth chart, that can then be used for mutual fund comparison.

If you don't know the answer to "What are mutual funds?", or you're not sure how mutual funds work, or you don't know when and how to buy mutual funds, it may be well worth your while to read the following basic definition and explanations to help you better understand mutual funds before using the mutual fund calculator.

What Are Mutual Funds?

The basic definition of mutual funds: A big pool of investment money created by a large number of small investors who combine their funds to gain the advantages that are normally reserved for big investors. This pool of investment money is managed by a professional who gets paid based on the amount of money they manage (some also get paid based on the fund's performance). And finally, each fund is geared toward a specialized kind of security (index, growth, income, sector, etc.). This means you can choose the type of fund based on your own investment goals and risk tolerance -- with the assurance that the fund will maintain its focus on securities that fall within that pre-defined type.

Main Advantages of Investing in Mutual Funds

A wealthy investor can afford to purchase a diverse portfolio of securities (stocks, bonds, short-term money market instruments, etc.) -- thereby reducing the risk of losing money if a segment of the economy moves in the wrong direction.

With mutual funds, small investors can afford to do the same thing by taking a small amount of money (as little as $500 or less) and investing in a mutual fund that in turn invests the large pool of money into a diverse selection of securities within the framework of their advertised type.

Another of the many advantages of investing in mutual funds is that you can sell or add to your shares at any time. Plus, you can also switch from one type of fund within a fund family (different types of funds managed by the same company) to another type of fund at no cost -- and with just a phone call.

Disadvantages of Investing in Mutual Funds

While mutual funds offer many advantages it's also important to realize that mutual funds are not federally insured -- even if you purchase them through a bank. Also be aware that management fees are charged by all mutual funds regardless of whether or not your mutual fund investment is gaining money or losing money.

For me personally, the biggest drawback to purchasing mutual funds (namely stock, or equity funds) is that I cannot control which funds make up the fund's portfolio. I personally don't like the thought of being a part owner of companies that I feel are detrimental to the health and well-being of their client base (credit card companies, tobacco companies, gambling companies, etc.). After all, where the money goes, so goes the power to influence (lobby). Like it or not, believe it or not, your vote with your money counts more than your vote on a ballot.

How Do Mutual Funds Work?

Basically, when you invest in a mutual fund you transfer money to the fund in an amount greater than the minimum required (varies from one fund to another). If the fund has a sales charge (front-end load), the fund deducts the charge from your initial payment and then issues the number of shares equal to the remaining balance divided by the NAV per share (Net Asset Value per share).

The Net Asset Value (NAV) is the fund's assets minus its liabilities. The NAV per share is calculated by dividing Net Asset Value by the number of shares outstanding. So, as a simple example, suppose a fund's assets were $150,000, its liabilities were $50,000, and the fund had 10,000 outstanding shares. In that case, the NAV would be $100,000 ($150,000 - $50,000) and the NAV per share would be $10.00 ($100,000 ÷ 10,000).

Continuing with the example, if you transferred $1,000 to the fund that had a 3% sales charge, you would be issued 97 shares of the fund ($1,000 - $30 sales charge = $970, ÷ $10 NAV per share = 97 shares). From there you can see that if the NAV rises (assets increase by a greater margin than any increase in liabilities), so does the NAV per share. So if the fund's NAV per share were to increase to say $12, this means you could sell your 97 shares back to the fund for $1,164 (97 x $12 NAV per share) -- leaving you with a gain of $194.00 ($1,164 - $970) -- less any deferred sales charges (back-end load) and annual operating costs.

Since it costs money to run a fund, all mutual funds charge an annual operating expense fee equal to a percentage (usually 1%-3%) of the value of your shares. Some funds may also charge for sales and marketing (referred to as "12b-1" fees), management, and "other" expenses. The amount of these charges and fees can be found in the prospectus that mutual fund companies are required to provide you with. Of course, all of these fees will serve to lower your rate of return, so it's important to shop and compare the fees charged.

When and How to Buy Mutual Funds

Before investing in mutual funds, or any other type of risk-bearing investment, you should have 3-6 months of income saved up in an emergency fund and have no outstanding high-interest debt.

If you don't have a fully-funded emergency fund I suggest you allocate all investment funds to creating that all important financial safety net.

Or if you do have a fully-funded emergency fund, but you have unpaid high-interest debt, I suggest you invest in your debt before you consider purchasing risk-bearing mutual funds that can't match the safe, tax-free, high rate of returns you can achieve with accelerated debt payoff.

If you do have a fully-funded emergency fund and you have managed to pay off all of your high interest debt, and you are ready to start investing in mutual funds, you have one of two primary ways of purchasing shares:

  1. You can buy mutual fund shares directly from a fund. These are typically referred to as "no-load" funds -- meaning there is no sales charge for purchasing the shares since they don't use a commissioned sales force to sell their shares. In this case you will need to do your own research in choosing which fund to invest in.
  2. You can buy mutual fund shares through brokers, banks, financial planners, and insurance companies. These are typically referred to as "load" funds -- meaning there is a sales charge since they need to compensate those that are selling shares on their behalf. In this case you can get recommendations from the seller as to which funds to buy. Just be aware that they may recommend funds based on how much commission they make. Also be aware that you will need to earn a higher rate of return in order to offset the sales charges.

Best Place to Begin to Learn About Mutual Funds

You should now have a rough understanding of what mutual funds are, how they work, and when and how to buy them. For more in-depth study I suggest you begin by visiting the Securities and Exchange Commission's (SEC) section on Mutual Funds.

With that, let's use the Mutual Fund Calculator to calculate the after-expense growth and equivalent annual yield of an individual mutual fund for the purpose of comparing mutual funds with different fee schedules (before using the mutual fund calculator, be sure to have the mutual fund's prospectus at your disposal to insure you enter the correct sales charge and fee percentages).

Mutual Fund Calculator
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Instructions: Enter the dollar amount to invest, the number of years you plan to hold the fund, the expected rate of return, and the percentages for sales charges and annual operating expenses.

Next enter the conversion annual percentage and the conversion year (if applicable), and then click the "Calculate Results for Mutual Fund Comparison" button.

Mouse over the blue question marks for a further explanation of each entry field. More in-depth explanations can be found in the glossary of terms located beneath the Mutual Fund Calculator.

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Help Dollar amount of investment ($):
Help Number of years you plan to hold the investment ($):
Help Anticipated rate of return (%):
Help Sales charge on purchases (%):
Help Deferred sales charges (%):
Help Total annual operating expenses (%):
Help Change operating expenses to % after years
Mutual Fund Growth and Yield
Help Value at the end of holding period:
Help Before tax net earnings:
Help Before-tax, after-expense equivalent annual yield:
Mutual Fund Cost
Help Total sales charges and fees:
Help Foregone earnings:
Help Total cost of fund at end of holding period:
Please grade my work and help me improve:
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Mutual Fund Calculator Glossary of Terms

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Dollar amount of investment: The total dollar amount of the funds you are considering investing in the mutual fund.

Number of years you plan to hold the investment: The number of years you plan to leave the funds invested in the mutual fund.

Anticipated rate of return: The percentage return on investment you expect to earn on the mutual fund. The percentage you can expect to earn should be based on conservative expectations. As we have seen post Y2K, history is not always a reliable predictor of the future. Sure, over the past 20-30 years, money market funds, bond funds, and stock funds have averaged around 5%, 9%, and 11% respectively, but that is certainly no guarantee of what the future might hold.

Sales charge on purchases: If the fund you are investing in has a sales charge (front-end load), enter the percentage here. This information can be found in the prospectus of the fund. Note that the mutual fund calculator will deduct this amount from the amount invested.

Deferred sales charges: If the fund you are investing in has a deferred sales charge (back-end load), enter the percentage here. This information can be found in the prospectus of the fund. Note that the mutual fund calculator will deduct this amount from the value at the end of the holding period.

Total annual operating expenses: The total annual operating expense percentage. Be sure to include any other expense percentages (12b-1 fees, etc.) that might apply. This information can be found in the prospectus of the fund. Note that the mutual fund calculator will deduct this amount at the end of each year.

Conversion percentage and year: If the fund you are investing in is scheduled to convert from one class to another within the entered holding period, enter the post-conversion annual operating percentage and the conversion year. If the fund is not scheduled to convert, leave both fields blank. Note that the mutual fund calculator need an entry in both fields in order to incorporate the conversion into the results.

Mutual Fund Growth and Yield Results

Value at the end of holding period: After calculating all gains and expenses, this is how much your mutual fund would be worth at the end of the holding period if your rate of return expectations prove to be true.

Before tax net earnings: This is the before-tax effective annual yield after accounting for all sales charges and operating expenses. If the field contains only # signs, it means the mutual fund calculator could not find a percentage match within 10,000 tries.

Before-tax, after-expense equivalent annual yield: This is the before-tax net gain on the investment (value at end of holding period minus initial investment).

Mutual Fund Cost Results

Total sales charges and fees: This is the total of all sales charges, deferred sales charges, and annual operating expenses incurred from the beginning to the end of the entered holding period.

Foregone earnings: This is the earnings you might lose out on due to having to pay the fees associated to investing in the mutual fund versus being able to invest the cost of the expenses. The mutual fund calculator accumulates these lost earnings as fees are scheduled to be paid throughout the holding period, and are based on the entered expected rate of return of the mutual fund.

Total cost of fund at end of holding period: This is the combined total of the sales charges, operating expenses, and foregone earnings for the holding period.

Printer-Friendly Mutual Fund Calculator Results button: If you would like to print out a copy of the mutual fund calculator results, clicking this button will open the results in a new printer-friendly page for printing. If you would like to associate the results to a particular fund for mutual fund comparison, enter the name of the fund in the field located to the right of the button.

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