Know Correct Way To Use Mutual Fund SIP Calculator!

When it comes to financial investments, we all want to foresee the returns it will generate in the future. Most importantly when it comes to investing in volatile equity funds, online tools such as SIP calculators are very helpful. As per latest reports, as of October 2023, the Indian mutual fund industry had about 73 million SIP accounts through which people have invested regularly. Let us learn what are the basics of SIP. How can you use a SIP Calculator to make better investment decisions?

SIP

Via a Systematic Investment Plan (SIP), you can invest small amounts in mutual funds at regular fixed intervals. The investor has the option to choose the SIP amount, tenure and desired frequency which can be monthly, quarterly or yearly. To get the best out of SIP investment, one must start early and stay invested for a longer duration.

SIP Calculator

Most investors invest in mutual funds through SIP with a financial goal in mind. It can be a short-term goal such as buying a car or a long term goal such as retirement planning or even funding of higher education. However, when it comes to deciding on how much your monthly SIP should be, a lot of questions come up in the investor’s mind. Some even choose to increase the SIP amount with rise in income levels. This is possible because of Top Up SIP feature. These days most mutual fund houses and financial institutions provide a free online tool called SIP Calculator. This tool empowers investors to project potential returns on their SIP investments. This facilitates improved financial planning and decision-making. By offering pre-configured customizable features like SIP instalment amount, investment frequency, expected rate of return, and investment tenure, investors can put in these values aligned with their financial goals. This will help them obtain an estimate of the potential corpus. How Should You Use a Mutual Fund SIP Calculator?

Follow these basic steps to smartly use SIP Calculator:

1. Enter SIP Amount: The first step is to enter the amount that you wish to invest through SIP. This fixed amount will be debited at a set frequency from your chosen bank account. It will get invested in the mutual fund scheme chosen by you. You can top up this amount as your income rises. For this, you have to use an additional feature which is Top Up SIP.

2. Enter Tenure of Investment: Enter the duration of your SIP investment. This value depends on your financial goal and should be ideally 5 years or more if you want to achieve higher returns.

3. Enter Investment Frequency: Enter the frequency on which you want to auto debit your SIP. It can be weekly, monthly, quarterly or yearly. Most investors choose a monthly option.

4. Enter Expected Return Rate/ XIRR (%): This represents the anticipated average annual percentage return on your investment. This value can be determined by evaluating the historical returns and the overall performance track record of the fund.

Upon entering all the above values in the SIP calculator, you can find out the estimated value of your investment for the chosen tenure. It will help you decide on your monthly SIP investment. You can enter the values multiple times as per your suitability.

Advantages of Using SIP Calculator:

1. Ease & Flexibility: It is a simple tool which anybody can use. One can enter the SIP amount, frequency and duration of investment and strategize investment decisions accordingly. Additionally, one has the flexibility to enter values multiple times which can help make confident decisions.

2. Accurate Financial Planning: By entering the values in the calculator, one can strategically make financial decisions and decide on the sip investment plans accordingly. This can help achieve various short and long-term financial goals.

3. Goal Based Investing: A clear picture of the estimated return on investment helps one make better decisions to achieve financial goals with ease. One can invest in mutual funds through SIP to fulfil short term goals such as buying a car to long term goals such as retirement planning or funding of children higher education.

4. Builds Motivation of Continued Investment: By investing small amounts regularly at a fixed frequency, one gains motivation to stay invested for a longer duration and thus benefit from the power of compounding.

Conclusion

SIP investment calculator is a highly effective tool for investors who are uncertain about the estimated potential value of their SIP investments. However, one must remember that this tool just gives an estimated value based on assumptions like steady returns. It often overlooks essential factors like inflation, market volatility, fees, and tax implications. Consequently, the actual returns may deviate significantly from the estimated calculations. Additionally, fund houses also offer other online tools such as Step-up SIP Calculator, SWP Calculator and STP Calculator.