How SIP Calculator Works?

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Have you put your money in the mutual funds spectrum lately? Even if you have not, you have thought about it – haven’t you? It is what it is; mutual fund investment lately has been booming. This has led to a wide number of people investing there. For the ones who think lump sum investments are the only choice you have with a mutual fund investment – there’s another way to go. It is through SIPs. Let’s learn more about SIP investments and ways you can estimate the returns.

What is an SIP Investment?

A Systematic Investment Plan (SIP) is a methodical approach to investing. The SIP strategy involves investing a set amount of money in mutual funds on a monthly, three months basis, or once in six months modes of investments. For instance – if you decide to invest Rs. 1,000 per month in a mutual fund via SIP, you should aim to guarantee that the money is sent into the fund on a monthly basis.

You can use the auto-debit feature to have the money moved immediately from your bank account to the fund on the specified date. You would not have to worry about skipping a monthly payment this way.

The objective of investing in mutual funds through SIP is to build wealth over time. It might help you instill the habit of saving and investing because it is a regular investment process rather than a one-time commitment. SIP investments can also decrease your exposure to financial market volatility.

So, is an SIP investment your kind of investment? If yes, you can get started without any worries. But, if you are a little tense over the investment, don’t worry; you can use a SIP investment returns calculator for free (the best part is that it is available online). Here, we are not going to be extremely specific – like SIP calculator SBI, SIP calculators from Groww, and much more.

We are going to be generic, so you can use any online SIP returns calculator you feel like.

What is an SIP Calculator?

A Systematic Investment Plan (SIP) calculator is an online financial tool that can help you with the calculations of the returns on your mutual fund SIP investments. The calculator would also tell you how much you need to invest each month to reach your goal corpus. Simply put, it serves as a roadmap for achieving your various financial objectives.

The calculator may be quite useful in automatically performing difficult financial calculations without the use of a pen and paper. You only need to enter a few parameters, and the calculator will return the result in a couple of seconds.

How to Use an SIP Calculator?

How should SIP investments be calculated? This is a major concern for many investors. The solution is to use an online mutual fund SIP calculator.

A mutual fund SIP return calculator typically has three input boxes. They are as follows:

Amount of monthly investment
Investment time frame
Annual expected returns

Every month, you must input the amount you intend to invest in a fund. For example, depending on how much money you want to invest, it might be as little as Rs. 500 or as much as Rs. 10,000 (or more).

Following that, you should enter the investment tenure. You must decide how long you wish to invest in the fund through the SIP. Generally, fund houses demand investors to commit to the SIP for a minimum of six months. However, you may wish to stay invested for a longer period of time (say, three years or more) in order to get respectable returns.

Following that, you must input the expected rate of return on investment. This value is often determined by the fund’s prior performance.

After entering these parameters, click the ‘calculate’ button to determine the corpus you could earn during the selected time period. You can experiment with the values to see what works best for your budget and goals.

What Formula is Used in the SIP Calculator?

FV = P [ (1+i)^n-1 ] * (1+i)/iFV

iFV = Future Value

P = Principal

i = Interest

n = Duration

r = Return rate

How Can This Calculator Help You?

The Systematic Investment Plan calculator essentially provides investors with a split of the future value of the SIP investment in the form of two figures: the expected return on investment and the principal.

As a result, you may use the SIP return calculator to see how your investment will grow over time, given a certain rate of return and SIP contribution.

When utilizing the online SIP calculator, you can also consider the effect of inflation, though not explicitly. You could even achieve this by doing some manual calculation of the nominal rate of return on the investment based on your goal’s real rate of return and the current rate of inflation.

Then, simply enter the manually calculated rate as your rate of return into the calculator to begin investing in mutual funds.

Conclusion

Now that you know how an SIP returns calculator works, go ahead and make that investment. When you can estimate the returns, you can walk heads up into the investment with some amount of confidence in the returns your investment will give in the future.