Mutual Fund Calculator

What this calculator tells you

A mutual fund charges an annual fee, usually shown as an expense ratio, which is deducted from the fund's assets each year. This calculator shows how that fee reduces the growth of a lump sum or regular monthly investments compared with the same fund without the fee.

The difference is easy to overlook because fees are small and appear every year, but they compound against you. Looking at the total money lost over a long period makes the cost much clearer.

How the fee is applied

The calculator treats the expense ratio as a reduction in the annual return. A gross return of 7% with a 1% expense ratio becomes a net return of 6%. The value of a lump sum after a number of years is the starting amount multiplied by one plus the net return, raised to the number of years. Monthly investments are calculated the same way, with each contribution growing from the month it is made.

A worked example

Suppose you invest 10,000 for twenty years and the fund's gross return is 7% a year. With no fee, the investment grows to about 38,700. With a 1% annual fee, the net return is 6%, and the value falls to about 32,100. The fee has cost about 6,600, which is about two-thirds of the original investment.

Comparing funds fairly

When comparing funds, use the same gross return for each, so that you are comparing fees and not performance forecasts. A fund with a higher fee needs to outperform a cheaper fund by the amount of the fee difference, every year, to produce the same result. Past performance is not a reliable guide to future returns, so cost is one of the few factors you can predict with reasonable confidence.

Assumptions and limits

The calculator assumes the fee is a fixed percentage of the balance each year, and that the gross return is constant. Some funds charge loads, sales commissions or platform fees that are not in the expense ratio, and these are not included unless you add them to the annual figure. Taxes on distributions and gains are also excluded.

Fees on monthly investing

The effect of fees is larger for regular monthly investing than for a single lump sum in some cases, because the contributions made early stay invested for longer. Enter your full schedule of contributions to see the true cost, rather than relying on the lump-sum figure alone.

Also check whether the fund has a minimum holding period or charges an exit fee, which add to the cost if you need to sell early. Compare the total cost under the most likely scenario for your plan.

Using the result

Use the calculator to see the cost of a fund over your investment horizon, and to decide whether a higher fee is worth paying for the service or the strategy. Check the fund's key information document for its ongoing charges, and look at any additional costs on the platform where you hold it.

Comparing fund fees with the index alternative

A useful comparison is between an actively managed fund and a low-cost index fund that tracks a broad market. Run the calculation for both using the same gross return, then decide whether the managed fund is likely to beat the index by enough to cover the fee difference, after tax. Most of the difference in outcome often comes from the fee, not from the choice of fund.