Most individuals dream of a secure financial future. A Systematic Investment Plan or SIP can be a useful tool to fulfil this ambition but in a more structured manner. An SIP offers a disciplined way to invest in mutual funds, offering benefits like rupee-cost averaging, automated contributions, diversification, long-term gains, and not to mention professional management of your funds. But how do you know if you are truly making the most of these benefits? By using an SIP calculator.
An SIP calculator is a tool that helps you estimate the future value of your SIP investments. You input your contribution amount, the expected return rate, and the investment tenure. This calculator then provides an estimate of the approximate sum you will accumulate at the end of the investment tenure.
Here is how the SIP calculator works
- Input the investment amount: This is the fixed amount you plan to invest regularly and buy securities. Assume you plan on investing Rs 5,000 each month.
- Specify the tenure: This is the period for which you intend to make these SIP investments. Let’s say you choose a 10-year tenure.
- Add expected return rate: This is an annualised rate at which you expect your mutual fund investments to grow. For illustration, let’s go with 12%.
- Click on the calculate button: The tool now performs the computations.
- Result visualisation: After clicking, the calculator displays the final maturity amount (capital invested + profits earned) at the end of the investment period.
For this example, it would show that you will have around Rs 11.6 lakh at the end of 10 years with a 12% return rate. Remember, the longer the term and the higher the investment in mutual funds, the larger the corpus accumulated.
How the SIP calculator helps you make better investments
Set clear goals: Often, people have lofty goals but lack a realistic plan to achieve them. An SIP calculator helps in setting realistic expectations by showing you exactly what you can achieve with your current investment strategy. For example, if you aim to buy a car in five years, the calculator can tell you how much you need to invest consistently. With this data, you can start saving without stress. It’s like having a roadmap for your savings journey.
No guesswork involved: Unlike manual calculations, which might be prone to errors, the tool offers accurate projections. You input the numbers, and the calculator shows you what you might earn. This removes the guesswork from your investment decisions as you get a clear number.
Eliminates emotional bias: Emotions can affect your decision, especially when markets fluctuate. An SIP calculator provides a logical approach to your investment plans. By showing exact numbers, it helps to keep emotional decisions aside. Rational decisions based on data can significantly improve the quality of your investments.
Customisation: SIP calculators allow for fast changes. If you think the expected final amount falls short of your target, you can easily adjust your monthly contributions. Within seconds, the calculator will show the new outcome. You can also experiment with different expected return rates or the tenures and see how these adjustments impact the returns. This way, the tool helps you tweak your investment plan until it aligns well with your unique needs and risk appetite.
Saves time: In today’s busy world, time is money. Manual calculations take time and are prone to errors. A mutual funds SIP calculator completes this task in seconds, providing you with quick and accurate results. You just enter your initial investment, monthly contribution, and anticipated rate of return. In a moment, you get a detailed outcome. This quick action lets you make decisions rapidly.
Encourages regular saving: The habit of saving becomes more consistent when you use an SIP calculator. Seeing how a small monthly contribution can grow into a large sum motivates you. You will likely stick to your savings plan when you realise that even small, regular investments can make a big difference.
Each of these reasons contributes to making an SIP calculator a valuable tool for better, more informed mutual fund investments. The best part is that most mutual fund houses offer this tool on their website for free, so you can make the most of it when planning your SIP investments.