Individuals who intend to route their investment via Systematic Investment Plan (SIP) must gain an insight into what to expect from such an investment mode before parking their money into it. SIP in mutual funds is often touted for its power of compounding feature that helps investors build a robust corpus over the investment tenure.
However, investors must know the estimated returns they can generate via SIP to understand if the same aligns with their financial goals. While one can opt for manual calculations to determine the estimated returns on their investment on maturity, using a SIP return calculator is much faster and simpler.
Read along to find out more about SIP return calculators and the perks of using them.
Table of Contents
What is a SIP calculator?
A SIP calculator is an investment tool that allows individuals to compute the estimated returns on their investment via SIP. The online calculator factors the principal invested amount, the rate of return, and investment frequency to offer an idea of the estimated returns.
How does the SIP Calculator work?
Primarily the SIP return calculator churns out results based on the variables entered by the users. The calculator’s system is fed with a compound interest formula, making it easier for the tool to ascertain the compounding effect of the internet on invested money.
Here’s the formula a SIP calculator is based on –
FV = P [ (1+i)^n-1 ] * (1+i)/iFV
In this formula,
FV is the future value or maturity value
P is the amount invested via SIP
i is the compounded return rate
n is the Investment duration expressed in months
r is the expected return rate
For instance, Sheenu invests a sum of Rs. 2000 every month for an investment tenure of 24 months. She expects to accrue interest at the rate of 12% annually. So as per the formula, the compounded interest rate would be (i = r/100/12) 0.01.
Using the formula,
FV = P [ (1+i)^n-1 ] * (1+i)/iFV
FV = 2000 * [(1+0.01) ^24 – 1] * (1+0.01)/0.01
The estimated return at maturity is Rs 54,486.
However, investors can skip the hassles of manual calculations altogether and remove the chances of calculation errors by using a SIP return calculator online.
Steps to Use a SIP Return Calculator
A SIP calculator ensures quick and easy calculations. Follow these simple steps to compute returns on SIP:
Step 1: Open an online SIP calculator
Step 2: Enter the amount of money you plan to and are comfortable investing each month.
Step 3: Enter the investment duration in which you plan to keep your money parked.
Step 4: Feed your expected rate of return in the specified field. (Note, it is the rate of returns on investment you expect to earn)
Step 5: Enter your planned frequency of investment, i.e., monthly, quarterly, or half-yearly.
Once all these essential details are fed into the SIP calculator, the maturity amount and returns on investment will be displayed on the screen.
Perks of Using an Online SIP Calculator
Here’s how individuals can benefit from using this financial calculator:
- Easy to use
SIP calculators come with a simple design that makes them easier for individuals to use and access. Its simple design and minimal requirements make it easy to use and don’t require one to possess any additional knowledge to achieve results.
- Saves time
A SIP calculator offers instantaneous results as soon as the user enters crucial investment details. This saves time by eliminating the need for manual calculations and checking the accuracy of the same. This further helps to avoid mistakes that are common in manual calculations with multiple steps.
- Helps in financial planning
A SIP calculator is one of the best ways to understand whether the plan aligns with their financial goals and the potential of the SIP as a long-term investment option. Subsequently, it helps estimate returns of various tenure-principal amount combinations. This helps strategize an investment plan that helps achieve financial goals and, simultaneously, helps understand what to expect by the end of maturity.
- Provides a practical picture
SIP calculators are designed to provide a close estimate of the returns on investment based on the data entered by the user. Using the same before investing doesn’t allow investors to process unrealistic hopes and, at the same time, offers a pretty accurate picture of their investment standing in the future.
How to Maximize Returns on Investment Using a SIP Calculator?
Here’s how you can maximize the returns on your investment with the help of an online SIP calculator:
- Increase investment amount
When you increase the investment amount, you are more likely to accumulate more units of a mutual fund scheme. Such a move can ensure higher returns on investment. However, before going ahead with an investment amount, make sure it suits your financial capacity and doesn’t strain your current finances.
- Increase investment tenure
Typically, a longer investment duration ensures a higher return on investment. This is because the longer tenure allows the Power of the Compounding aspect of SIP to unlock its full potential over the long term. However, besides investing for the long term, it is also important that you avoid premature withdrawals to allow the compounding interest to work its magic and build a stronger corpus.
- Choose a high-yielding mutual fund scheme
Parking money for the long term in a high-yielding scheme can help generate substantial returns. While a well-performing scheme is likely to generate higher rewards, staying invested for the long term can also help distribute the associated market risks. Regardless it is recommended to weigh in the market conditions before selecting a fund and not base your judgement entirely on its past performance.
- Choose the investment frequency cautiously
It is a well-known fact that investment frequency has a strong hold on overall returns. Use SIP return calculator to see for yourself how a monthly investment’s impact on invested sum differs from that of quarterly investments. Based on the outcome, you can pick a plan that suits you the most. However, you should also factor in your cash flow and monthly liabilities before moving ahead with any investment frequency.
This is how a SIP return calculator can help you plan your investment and maximize the returns from the same.