Systematic Investment Plan (SIP) is a popular method of investing in Mutual Funds. Small and regular investments made at regular intervals (monthly, quarterly or annually), make it possible to accumulate wealth over a period of time. Investors are not under any kind of pressure to make a lump-sum investment to begin investing. This method helps in averaging out the cost of investment, mitigating the impact of market volatility. Investors are mostly unsure of the amount they must have to begin investing in an SIP, an issue which an SIP calculator helps sort out.
What is a SIP Calculator?
An Online SIP calculator is a tool that helps investors estimate the potential returns of their SIP investment over time. Investors can use this tool to calculate the amount they can easily invest at regular intervals. They must enter key details such as monthly investment amount, expected rate of return, and the investment horizon to calculate the corpus that will likely build up by the end of the investment period. An online SIP calculator helps understand whether the investment made is sufficient or not to meet one’s financial goals.
The benefits of using an SIP calculator are many. Eliminating complex calculations, helping plan and set accurate investment goals, easing the task of compounding, and assessing different scenarios are some of the many tasks that an SIP calculator helps address.
Why Should You Use an SIP Calculator?
- Accurate Planning and Goal Setting: Using an online SIP Calculator allows investors to set realistic financial goals. The tool helps determine the amount an investor can begin investing with to reach the target amount. Whether you’re saving for a child’s education, a down payment for a house, or retirement, an SIP calculator offers clarity over these, giving you a tangible goal to work towards.
- Understanding Compounding: Making a complex issue such as compounding easy to understand is something that an SIP calculator excels at doing. The longer the investment period, the greater the potential for returns due to compounding. You get a chance to see how your monthly SIP contributions grow over time, how compounding works and the consistency at which your investments increase, all combining to have a final say at the corpus you end up building.
- Assessing Different Scenarios: Investors can use an online SIP calculator to test different scenarios by adjusting variables like the investment amount, return rate, or duration. They can put in different values and see how increasing or decreasing their investment amount and tenure influence their returns. Increasing your monthly investment or extending the duration of the SIP can dramatically boost your final corpus.
How to Make the Best Use of an SIP Calculator?
Below are some steps mentioned to maximise the benefits of using an SIP calculator:
- Choose the Right Investment Amount: The very purpose of using an SIP calculator is to find out the amount one can easily begin investing with. This figure should be based on your monthly budget, taking into account your income, expenses, and other financial commitments. While it’s important to choose a reasonable amount, ensure that the SIP investment amount is consistent, as regular contributions over time are essential for the effectiveness of compounding.
- Set a Realistic Time Horizon: The duration of your SIP investment plays a crucial role in the final corpus you build at the end of the investment period. Longer tenures allow you to take advantage of market fluctuations. Shorter investment periods are more preferable for investors eyeing short and quick returns. Typically, SIPs work best when invested for at least 5–10 years, especially if you’re looking for substantial growth.
- Estimate the Expected Rate of Return: The best thing about using an SIP calculator is that it helps calculate the rate of returns. Historically, Mutual Funds have been known to deliver 12 to 15% per annum as returns, depending on market conditions and type of fund chosen by the investor to invest in. Though past performances do not indicate future returns, still it is advisable to consider the risk and type of fund you are investing in when estimating the return rate.
- Review and Adjust Regularly: Through an SIP calculator, you can always project the rate at which your investment will grow. Still, it is advised that you review your investment strategy regularly, depending on market volatility, and personal finances. These factors may require you to adjust your SIP investment amount or the duration of your investment. Regularly reviewing your investment strategy and fine-tuning it depending on your personal finances will keep you on track to meet your financial objectives.
- Use an Online SIP Calculator: The tool is again your best friend and most loyal companion to calculate SIP returns. An online SIP calculator can be downloaded from various financial websites and apps, which instantly provide you with an estimate of the final corpus based on your input. Its user-friendly nature makes it easy for you to compare different investment strategies and identify the one which is best suited for you.
Conclusion
An SIP calculator is an invaluable tool for anyone looking to make the most of their SIP investment from Axis Direct. The tool provides a clear picture of potential returns depending on your inputs, and enables the investor in you to plan your financial future with confidence. Using an online SIP calculator can help you stay on track to meet your financial goals, whether you happen to just start your investment journey or look to optimise your current SIP.
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