A SIP calculator is a useful tool that helps investors estimate the potential returns on their mutual fund investment through SIP. The SIP return calculator uses certain inputs such as the investment amount, tenure, expected rate of return, and frequency of investment to provide an estimate of the future value of the investment. Here is a simple guide on how to use the calculator:
How is SIP Calculated?
SIP stands for Systematic Investment Plan, and it is a method of investing in mutual funds through regular contributions at fixed intervals. The SIP calculator uses the following formula to calculate the future value of investment:
M = P * (((1+r)^n – 1)/r)
Where,
M = Future Value of Investment
P = Amount Invested Per Installment
r = Expected Rate of Return per annum
n = Number of Installments or Investment Tenure in years
This formula takes into account the compounding effect, resulting in a higher potential return on investment. However, it is essential to note that the actual returns may vary depending on market conditions and other factors. The SIP calculator provides an estimate based on the inputs provided by the user and should not be considered as a guarantee of returns.
Steps to Use a SIP Calculator
Enter the Investment Amount: Start by entering the amount you plan to invest in SIP. This is the sum you will contribute regularly. It can be daily, monthly, yearly, based on your flow of income. For example, salaries individuals can opt for monthly SIP.
Choose the Frequency of Investment: Select the frequency of your SIP contributions. It could be monthly, quarterly, fortnightly, or even daily or any other periodicity based on your preference.
Enter the Investment Duration (Tenure): Specify the duration or tenure for which you intend to continue the SIP. This is typically the period until you plan to achieve your financial goals which varies based on the kind of investor. It can be short term goals like taking an foreign vacation or long-term ones like buying a house.
Input the Expected Rate of Return: Provide an estimate of the expected annual rate of return on your SIP mutual fund investment. This should be a realistic figure based on the historical performance of the chosen mutual fund schemes or your expectations for the future. This is a crucial input in a SIP return calculator.
Calculate: Once you have entered all the necessary information, click on the “Calculate” button to obtain the results.
Outputs from SIP Calculator
Future Value of Investment: The SIP calculator will provide an estimate of the future value of your investment at the end of the specified tenure. This is the amount you could potentially accumulate if your investment grows at the expected rate of return.
Total Investment Amount: It will also display the total amount you would have invested over the given period of time.
Returns Earned: The SIP return calculator often shows the total returns earned on your investment during the specified tenure.
Wealth Creation Graph (Optional): Some SIP calculators also provide a graphical representation of how your wealth grows over time, showing the gradual increase in the value of your investment.
Considerations
Realistic Expectations: Ensure that the expected rate of return is based on realistic assessments of the market and the historical performance of the chosen mutual funds.
Review Periodically: Periodically review and adjust your SIP contributions and expected rate of return to align with any changes in your financial goals or market conditions.
Tax Implications: Consider the tax implications of your mutual fund investment, depending on the category of funds that you are investing in.
How to Choose an SIP Calculator Online?
With so many SIP calculators available online, it can be overwhelming to choose the right one. Here are a few factors to keep in mind while selecting a SIP calculator for your mutual fund investment:
- Credibility: The calculator should be from a trusted and reliable source, like an authorized financial institution or a renowned financial advisor.
- User-Friendly Interface: The user interface of the calculator should be simple and easy to navigate, allowing users to input their data effortlessly.
- Accuracy: The SIP calculator should provide accurate estimates based on the inputs provided by the user.
- Customization: A good SIP calculator should have options to customize inputs according to your specific investment needs and goals.
- Availability of Information: Look for an SIP return calculator that also provides additional information and resources on mutual fund investments, such as performance analysis and expert insights.
- Multiple Currency Options: If you are a global investor or plan to invest in international markets, choose an SIP calculator that supports multiple currencies for accurate results.
Conclusion
By using a SIP calculator, investors can make informed decisions about their investments through SIP, can set realistic financial goals, and also track the progress of their wealth creation journey over time. It is an easily accessible tool for those who want to navigate the financial path better when they invest in SIP.
