Systematic Investment Plan or SIP is a popular mode of investment that allows individuals to park a fixed amount of money into mutual funds at regular intervals. Such a plan helps distribute risk and build a robust corpus over time.
To further help with their financial planning, today, leading institutions offer an online mutual fund SIP calculator. Such a calculator proves helpful in determining the estimated returns on investment and aids in financial planning.
To make the most of such a plan, let’s look at its basics and how to use it.
What is a Mutual Fund SIP Calculator?
The mutual fund SIP calculator is an online tool that helps determine the estimated returns one would make on their investment via SIP. The tool is designed to offer intending investors an insight into their mutual fund investments.
Such a SIP calculator only offers an estimated value, not the actual amount. This is because several market factors impact the actual returns on investments.
Additionally, the tool does not weigh on the mutual funds’ expense ratio and exit load.
Regardless it is a potent tool that helps plan finances and build an approach toward financial goals based on expected returns.
How does a Mutual Fund SIP Calculator work?
A SIP calculator comes with an inbuilt formula that sets in automatically when users enter details of their investment. It uses the compound interest formula to compute estimated returns and highlight the power of compounding SIP, which makes it one of the best saving plans.
Typically to compute returns on SIP, users need to enter the following:
- Amount of investment
- Investment frequency
- Duration of investment
- Estimated returns
A mutual fund SIP calculator uses the formula below to determine the returns on investment.
FV = P [ (1+i)^n-1 ] * (1+i)/iFV
Here,
P is the amount invested via SIP
i is the compounded rate of return
n is the term of an investment expressed in months
r is the rate of return
Example of compounding interest in SIP
Say Jeet invests Rs. 2000 each month for the next 24 months. He expects a return of 12% annually, so his estimated maturity amount as per the formula would be –
FV = P [ (1+i)^n-1 ] * (1+i)/iFV
FV = 2000 * [(1+0.01) ^24 – 1] * (1+0.01)/0.01
Note: ( i = r/100/12 or 0.01)
FV = 2000 * [(1+0.01) ^24 – 1] * (1+0.01)/0.01
The maturity amount is Rs 54,486
Note that several steps were involved in getting the final maturity amount. Besides the lengthy calculations, the same is also prone to mistakes when done manually.
However, when a SIP calculator is put into the mix, it eliminates manual calculations and the risk of making errors.
Benefits of Using Mutual Fund SIP Calculator
A SIP calculator helps to plan your investment and returns based on your principal amount and tenure.
Other than that, here are the key benefits of using a mutual fund SIP calculator:
- It helps determine the estimated value of the investment at the end of the SIP tenure
- Offers quick outcome within a couple of seconds, saving time
- There’s no risk of making any manual errors, providing accurate results every time
- Some calculator make also allow to account for inflation, thus offering a more believable and likely result
- It helps compare returns on mutual funds with other traditional investment options
- It helps understand how long-term investment can affect the principal amount to build a robust corpus
- Offers an idea if the estimated natural amount will be enough to meet financial goals
On that note, let us find out how to use a SIP calculator.
Steps to Use Mutual Fund SIP Calculator
The mutual fund SIP calculator is simple to use and offers quick outcomes.
Follow these steps to access and use a SIP calculator:
Step 1: Visit any leading investment fund page
Step 2: Navigate to the SIP calculator page
Step 3: Enter the SIP installment amount, SIP duration, and expected rate of return
Some calculators may also prompt you to add an estimated inflation rate to offer inflation-adjusted returns.
Once you enter the data, you will determine the maturity amount and if compounded interest.
Since the calculator allows you to readjust the data multiple times, you can tweak the tenure and principal amount combination to find the most lucrative and balanced selections.
This will help you plan and approach your financial goals better.
How can a Mutual Fund SIP Calculator help achieve Financial Goals?
Ideally, investors are advised to pick an investment instrument that matches their risk-taking capacity. Subsequently, they should focus on an ideal tenure that helps to ride out the risks and achieve financial goals.
To understand which tenure and principal combination would work the best for them, they can use the SIP calculator and judge the same based on estimated returns accompanying each combination.
For instance, Neetu may select a 15-year SIP tenure to build a corpus for her kid’s higher education. To understand which principal amount would help her achieve it, she may start by entering an amount in the calculator she is comfortable with to find the invested value by the end of the tenure and the returns on the same.
This will help her determine if the maturity amount will be enough for her child’s college fund or not.
Subsequently, Neetu may readjust the installments to determine which tenure-investment combination would be the best suited to build a steady corpus over the next 15 years.
It is recommended that while planning long-term financial goals, make it a point to account for inflation so that you can build a corpus that can withstand price hikes and meet your goals without any hiccups.
This is how a mutual fund SIP calculator proves useful for financial planning and helps eliminate the issues common in the manual calculation. Make sure to use the tool to compare different mutual fund SIP options and their offerings to pick one that will help you to build a corpus to achieve your goals with greater ease.
Also Read: Make goals with no fear – Invest in the right savings plan
