A systematic investment plan, or SIP, is a method for periodically investing a certain amount of money in mutual funds. You can often invest weekly, quarterly, or monthly using SIPs.
An SIP calculator is a tool that aids in calculating the returns available when investing money in such funds. All you need to do is enter the amount you want to invest, the time horizon and the estimated rate of return. Based on the result, you can also modify your investment amount or duration to understand what adjustments you need to make to ensure that you reach your financial goals within the period that you have estimated.
Things to keep in mind when using an SIP calculator
1. When it comes to investing in SIP plans, you can begin with an amount as small as Rs 500. However, there are certain mutual fund schemes whose SIP plans start as low as Rs 100. Do note that different types of mutual funds might have different minimum investment requirement.
2. Based on the rate of returns from the specific investment scheme, the calculator computes the estimated returns. It is prudent to estimate a number based on the fund’s prior performance to determine the potential rate of returns.
3. Depending on the type of SIP plan you select, there may or may not be a fixed tenure for you to follow. As a word of advice, it is prudent to stay invested for a longer time period to maximise earnings.
How does the SIP calculator work?
Compound interest is used in the calculation of SIP returns. Enter your desired monthly investment amount and select the months or years to invest. The SIP return calculator will compute the expected return for you. Here’s the formula that is used to calculate your estimated returns:
FV = P [ (1+i)^n-1 ] * (1+i)/i
FV = Future value or the amount you get at maturity
P = Amount you invest through an SIP
i = Expected rate of return
n = Tenure (in months)
Let’s use the case of X, who has opted to make a minimum 2-year investment of 5,000 each month in an SIP. Their investment is anticipated at 12% return.
FV = 5000 [(1+0.12)^24-1]*(1+0.12)/0.12
FV = Rs 1,36,216
Benefits of an SIP calculator
- Avoid errors
Manual calculations are prone to errors and inconsistencies. By removing all potential errors, an online SIP calculator provides you with a realistic outlook. Additionally, because these calculators are pretty speedy, it saves time. All you have to do is enter the data, and your outcome will be displayed in seconds.
- Immediate results
It has never been simpler to determine the future worth of your investments. There is no need for time-consuming figure crunching. The SIP calculator consistently displays accurate answers based on your inputs.
- Low investment amounts
If you do not have enough money to invest, a systematic investment plan calculator can assist you in making smaller investments. You can later choose to make greater investments based on the profitability of those individual amounts.
Investing processes are made simple when you use an online SIP calculator. This encourages you to make profitable SIP investments as you can anticipate what to expect and how much to invest to reach your goals beforehand, courtesy this calculator.