Systematic Investment Plan has emerged as one of the most popular mutual fund investment routes in recent years owing to its investor-friendly features and the benefit of the power of compounding. While SIP helps develop a disciplined approach toward investment, it can only prove to be lucrative only if planned properly.
To elaborate, individuals must determine whether investing in mutual funds via SIP can help them achieve their financial goals and build a reliable corpus down the down.
This is where a financial tool like a SIP calculator can prove extremely helpful in ascertaining the SIP returns. Of course, investors can compute the returns on SIP manually. However, such a method is often cumbersome and runs the risk of errors.
Take a look at the article below to know more about an SIP calculator and how the same plays a crucial role in investment planning.
What is a SIP Calculator?
A SIP calculator is an investment tool that is designed to help users estimate the returns on their systematic investment plan. The online investment tool weighs in factors such as principal amount, interest rate, tenure, and compounding frequency to determine returns on investment.
Such a calculator comes preloaded with a formula that helps compute returns within a few seconds of entering investment details.
The best thing about a SIP calculator is that the tool can be easily accessed online and can be used without paying any charges.
SIP Calculator Formula
An online SIP calculator is loaded with the formula mentioned below to help users determine the returns on their investment –
FV = P [ (1+i)^n-1 ] * (1+i)/iFV
In the formula,
FV denotes the estimated future value
P denotes the principal amount or investment value
i denotes the compounded rate of interest
n denotes the investment period (in months)
r denotes the expected rate of return
Example of Systematic Investment Plan Amount Calculation
Suppose Naman plans to build a corpus in the next 24 months. So he decides to park Rs. 2000 every month in mutual funds via SIP in the hopes of generating a 12% return on the sum annually. Based on the SIP formula –
FV = P [ (1+i)^n-1 ] * (1+i)/iFV
FV = 2000 * [(1+0.01) ^24 – 1] * (1+0.01)/0.01
Note: the compounded rate of interest is 0.01 (i = r/100/12)
Hence, at the end of the tenure, the SIP returns would stand at Rs. 54,486.
Indeed, the manual process of computing the maturity amount is quite cumbersome owing to the involvement of multiple steps. The same season also increases the risk of making multiple calculation errors, which will ultimately give inaccurate results.
Investors can easily skip these hassles by simply using a SIP calculator and achieving error-free outcomes every time.
Steps to Use an Online SIP Calculator
By following these easy steps one can access an online SIP calculator and simplify their investment planning significantly.
Step 1: Find out a reliable website featuring a SIP calculator. Look for the websites of trusted financial institutions.
Step 2: Navigate to the SIP calculator page.
Step 3: Enter investment details
Step 5: Enter investment frequency, i.e., monthly, quarterly, or half-yearly
Once these steps are covered, the investment tool will display expected returns and maturity amount instantly, with a proper breakdown.
However, it is recommended to identify your personal requirements and investment goals beforehand to use the tool effectively.
Features and Benefits of the SIP Calculator
The features and benefits of the SIP calculator make it an ideal investment tool for effective financial planning and more.
That said, here are the key benefits of a SIP calculator –
Ease of access and usage
Typically, SIP calculators have a very simple design to ensure that it doesn’t overwhelm users or confuse them. The simple user interface requires individuals to provide only the key details of their mutual fund investment to help determine the returns on them. Additionally, one can easily access a SIP calculator online without paying any charges.
Saves time
Since the SIP calculators offer automatic results as soon as all the key investment information is fed into it, the tool displays the outcome. This gets rid of manual calculations and saves one’s time and energy.
In fact, this quick feature further allows users to make multiple adjustments to the value of the variables to compare different mutual fund investments via the SIP route back to back.
Facilitates proper financial planning
As discussed, SIP calculators help compare different combinations of investment variables by allowing multiple readjustments. Such a feature helps understand which combination of tenure, principal amount, and compounding frequency will offer inflation-adjusted returns, that would be enough to meet future goals. Needless to say, such information can help plan a lucrative investment approach that will be ideal to ace their financial goals.
Additionally, the tool also offers an idea of whether the intended investment could impact the user’s current financial standing. In turn, it helps them make a practical approach toward investing that doesn’t necessarily strain their current finances.
While a SIP calculator serves as an all-rounder investment, it doesn’t necessarily prove useful when used to determine the maturity value of other investment options such as a ULIP, PPF, or a fixed deposit. To ascertain the returns on such investments, individuals must use a designated investment calculator to achieve accurate results.
How to Boost Returns on Investment through SIP
These simple tips can boost your SIP earnings by helping you to enhance your investment approach –
Tip 1: Increase the amount you intend to invest in mutual funds via SIP
Tip 2: Opt for a longer investment tenure to enjoy the benefits of the Power of Compounding that accompany the SIP option
Tip 3: Try to stay invested in the plan for a long time
Tip 4: Invest in high-yielding mutual fund schemes to build a robust corpus
Tip 5: Identify which compounding frequency works the best for your financial goals and choose the same accordingly
While these tips can help plan investment in mutual funds via SIP more effectively, it is recommended to invest as per one’s financial capacity. Investing more than one can afford will add unnecessary burden on the investor, and defeat the purpose of generating wealth in the long run. Moreover, it is crucial to keep one’s risk appetite in mind while investing. Exposing one’s portfolio to mutual funds with high risks will also make them prone to loss.
To understand the impact of these variables on investment more clearly it is recommended to use the SIP calculator.
