SIPs (Systematic Investment Plans) have changed how people used to invest in mutual funds. Its disciplined and manageable approach to wealth creation is attracting many new investors nowadays.
The idea of SIPs began as a simple approach – invest small amounts regularly to build a substantial corpus over time. Now it has become a mainstream financial practice and a lot of investors are now investing through SIP.
With SIP, you not only benefit from the power of compounding but also minimize the risks associated with market volatility. So if you are someone who also wants to benefit from the SIP investment approach, it is essential to plan first.
To plan your investments with accuracy, one of the best tools that you can use is – the SIP calculator. It is a tool that helps you calculate the future value of your investments. It gives you a clear picture of what you can achieve over time. Plus, with a SIP calculator, you can plan your investments according to your financial goals.
To help you benefit from the SIP calculator, we will discuss what the SIP calculator is, how it works, and how to use it to plan your investments. Let us start by understanding what an SIP calculator is.
What is a SIP Calculator?
A SIP calculator is a tool that helps you give a clear idea of the returns on your mutual fund investments made through SIP. These calculators are designed to give potential investors an estimate of their investments. However, the actual returns may vary according to mutual fund schemes and other factors.
How Does it Work?
A SIP calculator works according to the following formula
M = P × ({[1 + i]^n – 1} / i) × (1 + i).
Where,
M = Maturity amount.
P = Amount invested at regular intervals.
n = Total number of payments made.
i = Periodic interest rate.
For example, if you invest ₹2,000 per month for 24 months at an annual interest rate of 10%
The monthly interest rate would be 10%/12 = 0.83% = 0.0083.
So, according to the given formula, it is calculated as:
M = 2,000X ({[1 +0.0083 ]^{24} – 1} / 0.01) x (1 + 0.0083)
This gives you approximately ₹52,822 as a return on your investment after two years.
Note: The interest rate on an SIP can vary with market conditions, which may affect the estimated returns.
How to Use a SIP Calculator?
Using a SIP (Systematic Investment Plan) calculator is simple. Follow these steps:
1. Enter the amount you are planning to invest regularly. For example, if you plan to invest monthly, select the interval as “monthly” and enter the amount.
2. Specify the duration of your investment.
3. Enter the expected annual rate of return for your investment. This rate is usually based on market conditions and historical performance. Many calculators provide an average rate or allow you to choose a conservative, moderate, or aggressive return rate.
4. Select how often the returns should be compounded. Most SIP calculators assume monthly compounding, but some allow you to choose quarterly, half-yearly, or annual compounding.
5. Once the details are entered the calculator will automatically calculate the estimated maturity amount.
6. The calculator displays the final maturity amount with a breakdown of the total investment and the returns earned.
7. You can tweak the investment amount, period, or rate of return to see how changes impact your final maturity amount.
Benefits of the SIP Calculator
SIP calculator provides several benefits like:
1. It lets you easily plan your investments by entering your desired amount and tenure.
2. Helps you calculate an estimated total value of your investments by the end of the SIP tenure.
3. The SIP calculator is accurate and fast. It saves the time and effort of manual calculations.
4. It helps you ensure that your savings portfolio is future ready.
Conclusion
To sum up, SIP has now become the most popular and reliable strategy for stable wealth building. By allowing you to invest regularly and benefit from the power of compounding, SIPs have become a crucial way of financial planning for many. However, to benefit from the SIPs, it is necessary to plan properly. You can plan your investment with the help of various SIP calculators that are available online. Plus, following the above steps will get you a detailed SIP calculation. So, take control of your financial future and watch your wealth grow steadily over time.