Investing in a Systematic Investment Plan or an SIP is one of the most effective ways to build a solid corpus in the long run. However, to do so successfully, you need to understand how SIPs generate returns, something which an online SIP calculator assists you with. This great tool will help you make the most of your SIP investments.
What is an SIP calculator?
An SIP calculator is a simple, online tool using which an investor can get an idea of the returns they can expect on their mutual fund investments made through a Systematic Investment Plan or SIP. However, it is important to note here that an SIP calculator does not take into account the exit load (fee charged by Asset Management Companies or AMCs) and the expense ratio (the amount charged for managing funds). Hence, the actual returns may vary accordingly. Regardless, an SIP calculator is a useful tool to give investors a heads up and help them achieve financial goals based on an expected annual return.
How does SIP calculator work?
SIP returns are powered by the power of compounding interest. When calculated manually, you would need the following details –
FV = Future Value or the maturity amount
P = Amount you invest through SIPs
i = Rate of returns
n = Duration of investment (in months)
r = Expected rate of returns
The manual formula for calculating SIP returns would then be –
FV = P[(1+i)^n-1]*(1+i)/i
An online SIP calculator makes the process much easier as you are simply required to enter three details, as discussed below.
#1 Using the first slider, choose the amount you wish to invest in SIPs.
#2 Next, you need to adjust the slider or enter the tenure or duration (in years) for which you plan on making regular SIP investments.
#3 Using the third slider, you need to choose the rate of returns that you expect on your investments.
Once you have entered the three details, click ‘Submit’ and the calculator will show you accurate results, automatically and almost instantaneously. A lumpsum SIP calculator will show you the following results – Amount invested in SIPs, Amount earned at the time of maturity, and the interest earned during the period.
Tips for using an SIP calculator
Perhaps, the most important benefit of using an online SIP calculator is that it helps you make better investment decisions. Here are two tried-and-true tips to that end –
#1 Forecast your investment plans by changing the tenure and the amount to be invested. By comparing different outcomes, you can determine the one that suits you best and choose the amount and tenure that helped you arrive at such a choice.
#2 Keep the investment amount and the tenure constant and change the rate of returns to compare different SIP schemes. This will help you choose the one showing potential for the most profitable returns. Lumpsum SIP calculators are a great tool to plan your investments in advance. However, there are other great tools that help you invest better. You will find many investment apps like Moneyfy that allow you to compare between different funds and choose the one that suits your investment goals, risk appetite, and other requirements. Leverage them today and start your journey towards successful investing!