Making investments in mutual funds is a wise decision, but only if done with consistency and discipline. Those who invest with the right strategy, adopt a calculative approach, and stay focused on their objectives, have more chances to achieve their target goals.
However, with factors like inflation, rising living expenses, and market uncertainty, and family, work, and social obligations, it is difficult for many to make regular investments. But what if automation could help? This is where a Systematic Investment Plan (SIP) plays an important role.
An SIP helps you invest in mutual funds at regular intervals and automates your investments to maintain discipline and consistency. Though SIP has many advantages, like affordability, flexibility, diversification, and convenience, there are tools available to further maximise your returns. One such useful tool is an SIP calculator.
Understanding SIP calculators
An SIP calculator is a financial tool that helps users to calculate their SIP returns based on a certain investment amount, tenure, and expected return rate offered by the SIP plan. This online calculator provides results within seconds and saves time, effort, and errors that could occur from manual calculations.
The tool is very easy to use. Just input your investment details, and the calculator will instantly display the estimated returns. For example, let’s assume you want to invest Rs. 5000 in an SIP for ten years, and the expected return rate is 10%. Once you enter these details in the calculator, it will calculate the estimated returns on your investment, which would be approximately Rs. 10.3 lakhs (as per the SIP calculator).
Four ways SIP calculators help mutual fund investors
- Eases the investment decision-making process
With just a few inputs, such as investment amount, tenure, expected returns, and frequency, the calculator can project the future value of your SIP investments. This way, you can better visualise the outcomes and make calculated and realistic decisions.
- Helps in mapping out the investment time frame
The SIP return calculator helps to calculate the expected returns over different tenures, such as 5 years, 10 years, or 15 years. Such useful information can be used to identify the most suitable investment tenure to achieve your financial goals.
For example, an investor planning to accumulate Rs. 35 lakhs corpus for their child’s education after 15 years can use the SIP calculator to determine the returns they would get with their regular contributions. By trying different tenures, the investor can identify the one that would meet their financial requirements in the most efficient manner. It thus aids in planning for long-term SIP investment.
- Allows for experimenting
SIP calculator helps to experiment with different variables. It helps in identifying the best SIP plan and making realistic decisions to achieve investment targets.
For instance, suppose an investor plans to invest in two mutual fund plans- Plan A with an SIP amount of Rs. 5,000 and a return rate of 10% and Plan B with a SIP amount of Rs. 7,000 and a return rate of 9%. Using the SIP calculator, any investor can quickly compare the returns potential of both plans and understand how these different parameters affect the expected returns over a certain period.
- Risk assessment
The calculator demonstrates how variations in the expected return rate can affect your investment’s overall growth. With this information, you can analyse risk-reward trade-offs of different SIP mutual funds and evaluate if they suit your strategy.
For instance, if an investor uses the mutual fund SIP calculator and finds out that expected returns are lower, they may invest in another fund that offers a higher return rate or adjust their investment amount to compensate for that risk.
An SIP calculator is a valuable tool for mutual fund investors. It helps calculate the future value of investments, plan your investment strategy, and get a clear understanding of expected returns. The convenience, accuracy, and speed of SIP calculators are highly beneficial for both new investors and experienced ones. Thus, make sure to use an SIP calculator to make calculative decisions, set achievable goals, manage risks and optimise returns.