Why Should You Use a SIP Calculator?
A Systematic Investment Plan (SIP) is a popular way of investing in mutual funds in India. It is suitable for those who want to invest a small amount every month, instead of a lump sum in one go. The investments can be made weekly, monthly or quarterly.
A fixed amount is invested from the investor’s bank account to buy a specific number of units of the SIP at the ongoing market rate. This way, SIPs can help build the habit of saving through disciplined regular investments, without putting a burden on the investor’s monthly budget.
How Does a Mutual Fund SIP Calculator Work?
As an investor, you can get an idea of the returns from SIP investments in mutual funds through an online SIP calculator. All you need to do in input some basic information, and you will receive an estimation of returns. However, remember that the actual returns could differ due to various factors, including market conditions.
You can also learn how much amount you should invest in a mutual fund to achieve your long-term financial goals by using an SIP calculator.
An SIP return calculator works using the formula below:
A = P * [{(i + 1) n – 1} ÷ i] * [i + 1]
Here:
- A is the amount received on maturity.
- P is the amount invested regularly.
- n is the number of investments you have made.
- i refers to the periodic rate of interest.
Say, you wish to invest ₹1,000 per month for 12 months at a 12% rate of interest. In that case, the rate of return will be 12% ÷ 100 = 0.01. This means that the amount you could receive on maturity is ₹12,809 (approximately) per year. Just remember that the rate of interest can vary depending on market conditions.
How to Use a Mutual Fund SIP Calculator?
Calculating the returns manually using the above formula can be tedious, if not difficult. So, consider using an online SIP calculator to save time and efforts, while getting estimates that are free of human error.
You can find an SIP calculator online on the website of the mutual fund house you choose. You simply need to log into the website and search for the calculator. Then go ahead and use the SIP return calculator for free. For that, you need to follow these steps:
- Enter the amount that you choose to invest regularly. The minimum amount that you can invest in mutual funds is usually ₹500 per month. You can also check the minimum amount that can be invested in other schemes.
- The calculator will evaluate the estimated returns based on the rate of return from the specific investment scheme. To know the possible rate of return, you can check the track record of the fund.
- In the last step, you need to enter the tenure of your SIP investment. Although the minimum investment tenure is 6 months, it is a good idea to stay invested for the long term. This can increase the chances of gaining higher returns.
You can keep changing the variables on the mutual fund SIP calculator to settle for the best possible return. Just keep in mind that whatever result is displayed by the calculator has been calculated after considering capital gains tax and possible rate of inflation. Therefore, the results may not be accurate.
Benefits of Using a Mutual Fund SIP Calculator
- It is quite simple and easy to use the calculator. Even first-time users can use the tool conveniently, by providing some basic information.
- Since the SIP calculator works online, the results are auto generated. So, you can quickly learn the returns estimated from your regular investments. This can help you plan your investments suitably to reach your long-term financial goals.
- You can save on effort and time since the online tool removes the need for manual calculations.
- No extra details are needed, apart from information about your regular investments, the rate of returns from the chosen fund and the tenure of your investment. The tool has a user-friendly interface.
- You can use the SIP calculator online free of charge.
A Systematic Investment Plan is a highly dependable form of investment to mobilise small savings and invest them to meet your long-term financial goals. Just ensure that you use an SIP calculator to plan your mutual fund investments.
