What is a SIP Calculator?

A SIP calculator can be described as an investment tool that enables users to ascertain returns on their mutual funds via a systematic investment plan. The online financial tool takes into account several variables to estimate the returns and maturity amount. It comes pre-loaded with the SIP formula, which offers automated results within a few seconds of entering the investment details. 

Of course, individuals can still go for the manual calculation method to determine the returns on SIP. However, the manual method is deemed complex, time-consuming, and prone to calculation eros. Needless to say, even a minor error in the calculation can affect the accuracy of the results and jeopardize financial planning. 

That said, let us learn more about the SIP calculator to know about its usefulness and functionality. 

What is the Use of SIP?

A SIP calculator is readily available online and can be accessed and used for free. Typically, a SIP calculator helps compute returns on investments and offers insight into how the invested amount would grow over the tenure. Investors can use this detail to plan their investment via SIP or reassess the performance of their portfolio for accelerating returns. 

Notably, the SIP calculator may not factor in the impact of inflation on the returns. This is why it becomes crucial for investors to manually determine the interest rate they expect to earn after weighing in the current inflation rate. Subsequently, they can understand whether the estimated returns on investment would help them beat inflation. Since the calculator allows multiple adjustments to the investment variables such as principal amount, interest rate, and tenure, users can determine the ideal combination that will help them achieve –

Inflation-adjusted returns

A robust corpus

To use the calculator individuals need to enter the variables manually and wait no more than a few seconds to get the results. 

SIP Calculators Formula

A SIP calculator can help users find the following

Ideal principal amount to meet financial goals

Returns on investment

Ideal tenure to meet financial goals

The investment calculator uses this SIP formula to ascertain the maturity value –

FV = P x {[(1 + r)n – 1] ÷ r} x (1 + r)

In this formula, 

FV stands for the maturity value of the investment

P stands for the principal amount

R stands for the expected rate of return 

n stands for the number of contributions

Individuals can use this formula to compute the maturity amount of their investment via the SIP route. However, the manual calculation would involve multiple steps which often takes a lot of time and is also likely to be ridden with errors. 

Example of SIP Calculation

Radhika wants to determine the returns from a SIP of Rs. 1000 monthly for 24 months that will generate an expected rate of interest at 12% per annum. Using the SIP formula she found out –

FV = P x {[(1 + r)n – 1] ÷ r} x (1 + r)

FV = Rs. 1000 x {[(1 + 0.01)24 – 1] ÷ 0.01} x (1 + 0.01)

FV = Rs. 27,243

She would receive approximately Rs. 27,243 at the end of 24 months. If the returns do not seem enough to meet her financial goals, Radhika has the option to increase the monthly principal amount or tenure, or both. Since the SIP calculator allows multiple adjustments, she can use the tool until she finds the ideal principal and tenure combination. 

How to Use a SIP Calculator?

To use a SIP calculator online, individuals should start by visiting a website of a trusted investment portal. Subsequently, they should enter these details to make it work –

Principal or investment amount

It is the amount of money that you plan to invest in mutual funds through a systematic investment plan at a specific date. 

Investment duration

It is the tenure during which the principal amount will remain invested in the mutual fund via SIP. Typically, it’s expressed in years. Usually, it is thought that staying invested for the long term is more effective for generating greater returns and spreading out the risk involved. 

Investment strategy

Such a strategy helps users determine the average returns they expect to generate annually. Individuals usually have the option to choose from – aggressive, balanced, or conservative investment strategies, if made available at the calculator.

Once all the required details are in place, individuals can follow these steps to determine the estimated future value of their investment –

Step 1: Open the online SIP calculator

Step 2: Enter the principal or monthly investment amount

Step 3: Enter the investment period or tenure 

Step 4: Feed the rate of return 

Once these details are entered into the tool, the calculator will display the future value of the SIP investment within a few seconds. 

Based on the results, individuals can tweak their investment approach and reassess their current financial plan. That said, here are a few tips to ensure individuals generate substantial returns on their investments.

Tips to Maximize Returns on SIP Investment

Follow these to make the most of your investments via the SIP route –

Increase the principal amount you initially intended to park into the SIP. This is because a higher investment principal is more likely to help you generate higher returns that would help you meet your long-term financial goals.

Increase the tenure or investment period to benefit from the power of compounding, where, the returns get reinvested over time. This will allow you to generate greater returns and build a robust corpus. 

Increase the compounding frequency. Higher compounding frequency results in greater returns when compared to investment options that generate annual returns.

Pick mutual funds that are known to generate inflation-adjusted returns. However, make sure to account for your risk-taking capacity before you pick any specific mutual fund, as those with high-risk-reward components are more prone to market fluctuations.

Besides these, it is recommended to reevaluate one’s investment approach and performance of the portfolio frequently. This will help you realign your investment goals and approach to build a more suitable plan to achieve your financial goals. 

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