How the Mutual Fund Calculator Works
A mutual fund pools money from many investors and buys a mix of stocks, bonds or other assets. Your money grows as those investments grow, but the fund also charges fees. Fees look small, often only 1% a year, yet over decades they take a large share of your result. The Mutual Fund Calculator projects the value of your investment and shows what the fees cost.
What you enter
- Starting investment and monthly investment: the money you put in at the start, and what you add every month.
- Years to invest: how long the money stays in the fund.
- Expected return before fees: the fund's yearly growth, with dividends included and reinvested. This is an assumption, not a promise.
- Expense ratio: the yearly fee the fund takes, as a percentage of your balance. It is taken out of the fund's returns, so you never see a bill.
- Sales charge (front-end load): a fee some funds take from each dollar you invest. A no-load fund has none, so use 0.
- Inflation: used to show the final value in today's money.
How the growth is worked out
The calculator goes month by month. The return you earn is the expected return minus the expense ratio, divided by 12. Each month the balance grows by that rate, and then your deposit is added. A sales charge is taken out of every deposit, including the first, before it is invested:
net return = expected return - expense ratio new balance = old balance x (1 + net return / 12) + monthly investment x (1 - sales charge)
To measure the cost of the fees, the calculator runs the same investments a second time with no expense ratio and no sales charge. The difference between the two results is what fees cost you, including the growth you lost on that money.
A worked example
You start with $10,000 and add $500 a month for 20 years. The fund earns 8% before fees and charges a 0.5% expense ratio, with no sales charge, so the net return is 7.5%. Inflation is 2.5%.
| Result | Amount |
|---|---|
| Total you paid in | $130,000 |
| Value after 20 years | $321,474 |
| Earnings after fees | $191,474 |
| Value in today's money | $196,186 |
| Value with no fees at all | $343,778 |
| Fees cost you | $22,305 |
Chart: the fund grows faster over time
The same example, in thousands of dollars. Growth builds on itself, so most of the gain comes in the later years:
Start █ 10 Year 4 █████ 41 Year 8 ██████████ 84 Year 12 ██████████████████ 141 Year 16 ███████████████████████████ 218 Year 20 ████████████████████████████████████████ 321
Over the same 20 years, you paid in $130,000. The other $191,000 is growth.
Why fees matter so much
The same investment, with only the expense ratio changed:
| Fund | Expense ratio | Value after 20 years | Fees cost you |
|---|---|---|---|
| Low-cost index fund | 0.03% | $342,390 | $1,388 |
| The example | 0.5% | $321,474 | $22,305 |
| Higher-cost managed fund | 1.5% | $281,775 | $62,003 |
A sales charge of 5.75% on the example investment lowers the value to $302,989. That is $18,485 less than the same fund with no load.
Tips
- Compare the expense ratio of similar funds before you buy. It is listed in the fund's prospectus.
- Prefer no-load funds unless a load buys you something you value.
- Keep investing every month. The regular deposits, and the time they have to grow, matter more than the exact return.
- Use the inflation figure to judge what your goal is really worth in the future.
What this calculator does not include
- Taxes on dividends, capital gains distributions and the sale of fund shares.
- Back-end loads, account fees, advisor fees and other charges.
- Ups and downs in the markets. A steady return is an assumption, and real returns change from year to year, sometimes by a lot.
This tool gives an estimate for general information only. It is not financial or investment advice. Past performance does not guarantee future results, and you can lose money in a mutual fund.