SIP Calculator

Introduction

If you are planning to start mutual fund investments, you would have come across the term systematic investment plan or SIP. You would also have seen various sites offering the services of a SIP calculator online. A SIP calculator or mutual fund return calculator can enable you to determine the potential returns you may earn while investing in specific mutual funds. Using a SIP calculator online, you can easily plan out your SIPs and attain your financial goals.

What is SIP Calculator?

Before you turn to a MF SIP calculator to plan out your investments, you need to understand what is SIP calculator. A SIP calculator online is a simple and effective digital tool which helps you, and other investors, arrive at the potential returns that you can expect from the SIP investments you make in your preferred mutual fund scheme. Given that mutual fund SIPs are becoming more and more popular every day, it is important for you to know the potential returns you will earn, through the use of a SIP calculator. And the best part is that a SIP calculator online can be used easily and frequently to determine your returns and thereby plan for your financial goals.

When you use a SIP calculator, you will be able to arrive at an estimate of how much you need to invest to reach your goals in a systematic and disciplined manner. But you need to understand that a SIP calculator can only offer you an estimate of potential returns - the actual returns on your mutual fund investments will depend upon the underlying market scenario. Further, using such an online calculator will not help you figure out other aspects such as the expense ratio of the scheme or the exit load upon redemption.

Using a SIP calculator, you can estimate the potential wealth gain as well as the returns you can expect on your monthly SIPs, for the time horizon of your choice. Such a projected estimate of the maturity amount can go a long way towards helping you choose the right mutual fund for investment, thus making the process seamless and efficient. It is advisable to utilise a SIP calculator and understand the potential returns before you start your mutual fund investment journey.

How to use SIP returns calculators?

Using SIP calculator online is a straightforward process that allows you to estimate the potential returns on your mutual fund investments. By following these steps, you can effectively utilise the best SIP calculator to make informed decisions about your financial goals -

• Choose a reliable SIP calculator online: There are numerous SIP investment calculators available online, offered by various financial institutions and mutual fund providers. It is crucial to select a reputable and reliable calculator that considers essential factors such as historical returns, investment tenure, and inflation rate to receive the best estimate possible.
• Input investment details: Begin by inputting the necessary investment details into the best SIP calculator available. This typically includes the monthly SIP amount, the expected rate of return, which is usually projected based on historical data, and the investment tenure or the duration for which the SIP will be continued.
• Account for inflation: A SIP investment calculator should allow users to factor in inflation, which can erode the purchasing power of future returns.
• Review and analyse results: Once all the details are entered, the calculator will generate an estimate of the potential returns. You should review and analyse these results to figure out if they align with your requirements.
• Compare different SIP scenarios: The flexibility of SIP calculators enables users to compare various SIP scenarios so you can easily experiment with different investment amounts, tenures, and expected rates of return to understand how these factors influence the final outcome.
• Reassess periodically: Financial situations and goals may change over time and therefore, you should reassess and adjust your SIP plan periodically, especially if there are significant life events or changes in risk tolerance.
• Consider professional advice: In addition to calculators, you should also seek advice from financial advisors or professionals for a more holistic understanding of the investment strategy.

How do SIP returns calculators work?

SIP return calculator is a powerful tool used by investors to estimate the potential returns on their mutual fund investments made through SIPs. An SIP calculator operates on a set of predefined algorithms based on various financial parameters to provide users with an approximate projection of their investment growth over time. Understanding how an SIP calculator online works can help you make informed decisions and set realistic financial goals.

Here's a detailed explanation on how a SIP calculator works -

• Investment details: The first step in using a SIP return calculator is to input the relevant investment details, like the monthly SIP amount, the expected rate of return, and the investment tenure. Some calculators may also ask for the initial investment amount, especially if the SIP investment is starting with a lump sum investment.
• Rate of return: The expected rate of return is a crucial factor in the SIP investment calculator's algorithm and is usually based on historical data.
• Compounding and frequency: An SIP calculator online then takes into account the power of compounding, which means that returns are reinvested to generate additional returns. The frequency of compounding is determined by the SIP's investment period, which is typically monthly in most cases.
• Accounting for inflation: Advanced SIP investment calculators also consider the impact of inflation on the investment. Inflation reduces the purchasing power of money over time, and the calculator adjusts for this to provide a more accurate estimate.
• Calculation methods: The SIP calculator formula employs various methods, including the compound interest formula, time value of money calculations, and other financial algorithms.

Following is the SIP calculator formula you should be aware of -

M = P x {[1 + i]}^n - 1 } / i) x (1 + i).

In this formula, M indicates the amount you will potentially receive upon the maturity of your SIP

P refers to the SIP amount you are planning to invest

n indicates the number of payments you have made

i refers to the underlying periodic rate of interest

Let us consider an example here for better understanding of the formula -

Investor X has decided to begin his SIP investment in mutual funds with a monthly investment of INR 1000, with a time horizon of one year. Given that he is investing in a large cap equity fund, he is expecting a periodic rate of interest which would be around 12%. In this scenario, applying the afore-mentioned formula will yield the following results -

First, we will calculate the monthly rate of return, which will be the periodic rate of interest divided by the total number of months in a year -

12% / 12 = 1 / 100 = 0.01

By this measure, investor X's M, or amount upon maturity can be calculated as M = 1000 x ({[1 + 0.01]^12 - 1 } / 0.01}) x (1 + 0.01)

The calculation offers us the result of INR 12,809, for the one-year duration.

Please note that even the best SIP calculator will not be able to predict your exact returns upon maturity, due to its linkage with market conditions.

Advantages of SIP calculator

Using a mutual fund SIP calculator can unlock a bevy of advantages for you. Accordingly, a SIP return calculator can be your best friend as you try to plan your investment journey. Here are some of the major advantages of using a SIP investment calculator.

• Easy to use: A mutual fund SIP calculator is a user-friendly tool which is exceptionally convenient and easy to use. All you need to do is input basic investment details, such as the SIP amount, investment tenure, and expected rate of return. Once you add these details, the calculator will handle the complex calculations and provide instant results, saving time and effort.
• Goal setting: A SIP return calculator will help you set specific financial goals. By projecting the potential returns based on different investment scenarios, you can determine how much you need to invest monthly to achieve your financial goals in a sustainable manner.
• Realistic expectations: SIP investment calculators provide realistic expectations of investment growth as they factor in market performance, compounding, and inflation, thus offering a more accurate and realistic picture of the investment's future worth. This helps you set achievable goals and undertake wise investments.
• Try multiple scenarios: With a calculator, you can experiment with various investment scenarios by adjusting the SIP amount, tenure, and rate of return to compare potential outcomes. This will help you zero in on the best way forward.
• Informed decision-making: Since the calculator you use will help you arrive at an estimated maturity amount, you have the ability to take informed decisions with regards to your investments. With a clear understanding of potential returns and risks, investors can select the most appropriate mutual fund schemes that match their financial objectives.
• Visual representation: Many SIP calculators present results in graphical representations, such as charts and graphs, making it easier for you to comprehend the growth trajectory of your investments over time.
• Monitoring and review: SIP calculators encourage investors to monitor and review their investments regularly. By comparing actual returns with the estimated projections, you can assess the performance of your mutual fund investments and make adjustments if necessary.
• Promoting discipline: The systematic nature of SIP investments encourages financial discipline. When you use SIP calculators, you receive a demonstration of the power of regular and disciplined investing over the long term, and this prompts you to stick to your goals.
• Risk management: SIP calculators help investors assess the impact of risk on their investment portfolio. By understanding how different rates of return can affect their wealth accumulation, investors can make risk-conscious decisions and diversify their investment holdings.
• Education: SIP calculators can serve as educational tools for investors, especially those who are new to mutual fund investments as they offer insights into investment dynamics, compounding effects, and the importance of starting early in wealth creation.

As you can see, using a free SIP calculator can help you unlock a variety of benefits as you plan your financial goals and work towards realising them efficiently.

What are the types of SIP?

When choosing an SIP, it is imperative that you consider the different types of SIP to arrive at the optimal types of SIP investment for your requirements. While an SIP calculator can help you arrive at the correct investment amount, knowing the types of SIP investment can make your journey easier. Before you begin using the SIP calculator, here are the types of SIP that you should know about –

Top-Up SIP

With a top-up SIP, you have the option to adjust your SIP instalment by a set amount at predetermined intervals. For instance, if you have been contributing INR 1,000 monthly to an equity fund, you can opt to increase your investment to INR 1,500 using the top-up feature. This method allows for a seamless increase in contributions as your income grows over time. In your SIP calculator, you can choose this option, from types of SIP, if you wish to see aligned returns.

Flexible SIP

While SIP traditionally involves investing a fixed amount regularly, circumstances may prevent consistent investments. In such cases, a flexible SIP offers flexibility. You can modify your monthly investments based on your cash flow. During financial constraints, you can decrease the SIP amount, and during periods of surplus, you can increase it. This flexibility is particularly beneficial for individuals with irregular incomes, such as entrepreneurs.

Perpetual SIP

Typically, investors commit to a fixed tenure when investing in mutual funds through SIP, ranging from a few months to several years. However, for those who prefer an indefinite investment horizon, the perpetual SIP option is an optimal one from among the different types of SIP investment available. With perpetual SIP, you can continue investing in the fund via SIP without a predetermined end date, until you decide to stop it.

How to invest in SIP?

Now that you know all about SIP mutual fund calculator, investment planning and mutual fund investment process, here is how to invest in SIP online. Using the following steps, you can invest in SIP and start your wealth creation journey.

How to invest in SIP?

If you are looking for guidance on how to invest in SIP online or offline, follow these three straightforward steps -

• Select a mutual fund: Start by researching and choosing a mutual fund that aligns with your investment objectives and risk tolerance. Once you have made your selection, complete the necessary KYC procedures and submit the required application form either online or offline to the Asset Management Company (AMC) to kick-start your investment journey.
• Determine the investment period: After selecting a fund, decide on the duration you intend to stay invested. This timeframe could span anywhere from 6 months to 10 years, depending on your financial goals.
• Maintain regular investments: Choose a specific date each month for your SIP investment. Consistently investing through SIPs offers a convenient and uncomplicated approach to building long-term wealth. Therefore, it is advisable to remain invested for the entire chosen investment period.

Having understood how to invest in SIP, you can choose the scheme and use a SIP mutual fund calculator to arrive at the amount your need to invest in SIP on a monthly basis, to attain your financial goals optimally. This is called investment planning and it plays an integral role in achieving your goals.

Calculate with Mutual Fund SIP Calculator

A simple, convenient and flexible way to start your investment journey in a disciplined manner. Invest small amounts at regular intervals. Start small and build wealth over the long term.

Frequently Asked Questions