Find out smartest way to use SIP Calculators?

In the last 5 years, the SIP linked Asset Under Management (AUM) in India’s mutual funds industry has seen an annual growth rate of 32%. While, the overall mutual fund AUM has only increased by 16% during the same duration. This has lifted the share of SIP AUM in the total mutual fund AUM to 18.7% from only 9.9% five years ago. Additionally, despite higher volatility in the market, the new SIP registrations remained above the 2 million mark for the third consecutive month in October 2023). It is evident that the SIP route is now serving as an important plank for driving domestic inflows. With the invention of tools such as SIP calculators, investors can now gain insights into the potential returns on their mutual fund investments made via SIP.

Systematic Investment Plan (SIP)

A Systematic Investment Plan (SIP) is a method to invest in mutual funds in a systematic and disciplined manner rather than making a lump sum investment. It allows one to invest a fixed amount regularly in a mutual fund scheme of choice at a set frequency which can be weekly, monthly, quarterly or yearly. To get the best out of this investment approach, it is advisable to invest for a longer duration.

SIP Calculator

SIP Calculator is an online tool offered by fund houses and other financial institutions that helps investors estimate the potential value of their investments through systematic and regular contributions. By using this tool, one can make better decisions when it comes to planning investments and setting realistic financial goals. Through this tool, one can experiment with different SIP amounts, investment durations, and expected rates of return. It helps investors foresee how these factors would impact the potential value of their investments.

How SIP Calculator Works?

1. Enter Amount of Instalment: Enter the SIP Amount that you wish to invest.

2. Investment Frequency: Enter the frequency at which you want money to be auto-debited for the SIP payments (ideally most people prefer a monthly option).

3. Enter Tenure of Investment: Enter the period for which you would like to stay invested. This depends on your financial goal. It is advisable to stay invested through SIP for a longer duration (ideally 5 years) to achieve the desired returns.

4. Enter Expected Rate of Return: This is the average annual percentage return you expect from your investment in a mutual fund scheme. You can estimate it according to the funds’ past returns and the overall track record.

Once you enter all these values, the SIP calculator would provides the estimated future value of your investments over the chosen investment period. This way, investors can find out how their regular contributions can accumulate over time, taking into account the power of compounding. However, one must also remember that this just gives an hypothetical assumption while the actual returns may vary based on changing market conditions.

Example:

Enter these details in SIP Calculator:

Monthly SIP Instalment: Rs 25,000
Expected return rate: 10%
Time Period: 10 years
The potential returns will be as follows:
Invested Amount: Rs12,00,000
Estimated Return: Rs 8,65,520
Estimated Amount on Maturity: Rs 20,65,520

Benefits of Using a Mutual Fund SIP Calculator:

1. Easy to Use: As mentioned above, SIP Calculator is a simple tool that quickly generates the potential returns as per values input. Depending on the estimated returns, one can strategically make investment plans to meet the financial goals.

2. Helps Stay Invested: The estimated value of returns calculated through SIP Calculator helps build confidence in investing. This helps one stay motivated to invest small amounts regularly through the SIP route. The habit of staying invested for a longer duration thus helps achieve desired results.

3. Invest as per Your Goal: The financial goal can be a short term such as buying a car or a vacation. While, long term goal may be retirement planning. The SIP Calculator helps you align your investments with your desired goals as it shows a clear picture of how much you should invest.

4. Accurate Financial Planning: By comparing different investment scenarios, one can strategically make investments as per their respective financial goal. The calculator allows one to alter the SIP amount, frequency, duration as well as the mutual fund scheme that one wishes to invest in. This aids one in better financial planning.

Conclusion

Similar to SIP itself, the SIP Calculator provides diverse advantages to investors. This tool is particularly useful for individuals who are uncertain about how much returns they can anticipate from their SIP investments. It is useful for those who want to find out how much investment they require to attain their desired results. However, one must note that these returns are generated by the SIP calculator. It is based on assumptions like steady returns. It often ignores other important parameters such as inflation, market volatility, fees and tax considerations. Hence, actual returns may differ significantly from the estimated calculations. Additionally, fund houses also provide online calculators which investors can use to make estimates if they use other types of SIPs also. E.g. investors can find out how much return they can estimate if they choose to invest via the SIP Top Up option. They can also use the calculator if they choose to invest via other types of systematic investment strategies like SWP (Systematic Withdrawal Plan) and STP (Systematic Transfer Plan).