A systematic investment plan (SIP) is a method that allows individuals to invest small amounts in mutual funds at regular intervals, say monthly, weekly, or quarterly. In this investment mode, the power of compounding helps investors achieve significant growth by reinvesting earnings.
With the advancement in technology, there is now an option available to estimate the returns from a particular SIP. The tool is called the SIP calculator. This calculator helps investors understand how much needs to be invested to reach the target investment. In this article, we’ll cover how to use a SIP calculator.
Contents
What is a SIP Calculator?
The SIP Calculator is a financial tool that helps to calculate the returns one can earn on a particular investment.
The SIP calculator works on a particular formula which is as follows:
M = P x ({[1+i]^n-1}/i) x (1+i)
Where, M = Amount you received on maturity
P = Amount invested monthly/quarterly/weekly
n = Number of payments made
i = Periodic rate of interest
Let’s consider an investment of INR 2000 per month for 12 months @ 10% interest
The monthly rate of return for this investment will be 10%/12 = 0.008
If we look at the formula it gives,
M = 2000 x ({[1+0.008]^{12}-1}/0.008) x (1+0.008)
= INR 275084.67 per year
How to Use a SIP Calculator?
There are 3 main components in a SIP calculator that help you get the estimated amount you receive at the end of your investment tenure and they are:
- i) Investment amount – This is the amount you invest in regular intervals
- ii) No. of years – This is the period in which you invest your money.
iii) Expected return – This is the final return you get at the end of the tenure.
After entering these 3 values the calculator will display the estimated amount you can get at the end of the investment period.
In addition to all of this, it is important to consider inflation also. In case of inflation, you may not be able to predict the future value of your investment. It is recommended to consider the inflation rate because it gives a clearer picture of what your earnings might be. Some calculators also provide a graphical view of your earnings.
SIP calculator helps in calculating returns from various mutual fund schemes. Also, investors looking for tax-saving mutual funds may consider ELSS (Equity Linked Saving Schemes). One can invest in these tax-saving funds through the ELSS app.
Benefits of Using SIP Calculator
Using the SIP calculator can help investors make informed financial decisions. Here are some of the benefits of using SIP calculator:
- It helps plan your investment based on the amount that you have and the tenure that you’re planning to invest it for.
- It helps to estimate the total value of your investment at the end of the investment period.
- It offers ease of use because it has a user-friendly interface.
- Using the SIP calculator is free of cost.
- It provides a degree of customization that allows users to enter their parameters and preferences and give results based on those parameters.
Conclusion
When it comes to investing, investors need to take into consideration various factors before making a decision. Using a SIP calculator can help investors make informed financial decisions. However, the SIP calculator can only be used as an indicator to get an idea about the returns investors may receive. Also, the actual returns may vary due to market fluctuation. Using a calculator is free of cost and does complex calculations in seconds. With the help of SIP calculators, investors can set realistic financial goals, and manage risks more effectively.
Disclaimer:
Views and opinions contained herein are for information purposes only and should not be construed as investment advice/ recommendation to any party or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The recipient should exercise due caution and/ or seek professional advice before making any decision or entering into any financial obligation based on information, statement or opinion which is expressed herein.
Past performance may or may not be sustained in future.
Mutual Fund Investments are subject to market risks, read all scheme-related documents carefully.