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How Does SIP Calculator Help in Assessing Your Mutual Fund Returns?

If you’re an investor, you likely understand the struggles of calculating the returns on your mutual fund investments. You have to consider several factors, like the investment amount, the frequency of the SIP, the rate of return, and the investment duration. With so many variables, it’s common that the task becomes daunting and error-prone.

However, have you ever considered using a tool that does this job for you with precision? This tool is the ‘SIP Calculator,’ an innovative financial tool set to change how you manage your mutual fund investments.

Understanding Mutual Fund Investments and SIP

Mutual funds represent a favoured choice for investors, acting as a collective investment scheme where contributions from numerous investors are amalgamated and then allocated across a broad portfolio. The Systematic Investment Plan (SIP) route is an option for investing in such funds.

SIP allows you to invest a fixed amount regularly in a mutual fund scheme, thus paving the way for disciplined investing and long-term wealth creation.

  • The SIP mode of investing is akin to a recurring deposit where you allocate a specific sum regularly to the mutual fund scheme.
  • By doing this, you take advantage of the power of compounding and rupee cost averaging, both critical components for creating wealth in the long run.

Let’s consider a scenario. Suppose Meena invests INR 5000 monthly in a mutual fund scheme. Over a year, she will invest INR 60,000. If the scheme generates an average annual return of 12% at the end of 10 years, her investment would be worth approximately INR 11,61,000.

Now, calculating such returns manually could be complex. That’s where a SIP calculator comes to the rescue.

The Role of a SIP Calculator

A SIP Calculator is a simple, user-friendly tool that helps you estimate the returns from your SIP mutual fund investments. It uses certain inputs to calculate the potential returns from your investment. Understanding these variables is crucial to use the SIP calculator effectively.

  • SIP Investment Amount: This is the amount you plan to invest regularly in the mutual fund scheme. For example, Ravi intends to invest INR 10,000 every month. This would be his SIP Investment Amount.
  • SIP Frequency: This indicates how often you will make your SIP investments – monthly, quarterly, or annually.
  • Expected Return Rate: It is the annual return rate you expect your mutual fund scheme to generate. Using a conservative rate to get a realistic estimate is generally recommended.
  • Investment Duration: This is the period for which you will continue your SIP investments.

How to Use a SIP Calculator?

Using a SIP calculator is straightforward and swiftly estimates your potential returns. 

  1. Enter the SIP investment amount. This could be the amount you are currently investing or plan to invest.
  2. Specify the SIP frequency – whether monthly, quarterly, or annually.
  3. Input the expected annual return rate. Remember to be conservative with your expectations.
  4. Select the duration of your investment.
  5. Click on calculate. The calculator will then provide an estimate of the future value of your investment.

Reading and Interpreting the Results

The SIP calculator gives you an estimate of the future value of your SIP investments. This estimated value comprises your total invested amount and the wealth gained.

The SIP calculator offers a comprehensive investment breakdown. It calculates the total amount you have invested over time, the wealth gained (or the returns you earned), and the future value of your investment.

Future value is the total amount your investment would be worth at the end of your investment duration. The total investment value is the aggregate of all your SIP investments made over time. Wealth gained is your profit, i.e., future value minus the total invested amount.

Also Read: Understanding the Importance of Investment Banking

Advantages of Using a SIP Calculator

A SIP calculator can play a vital role in your financial planning process. Its benefits extend beyond the mere calculation of returns.

  • It assists in goal setting and helps you understand how much to invest to achieve specific financial objectives.
  • It is straightforward to use and provides instant results.
  • It helps make informed investment decisions by providing a clear picture of potential returns.
  • By minimising human error, it ensures the accuracy of the calculated returns.

Suppose Vijay wishes to accumulate INR 1 crore in 20 years for his retirement. Using a SIP calculator, he can easily determine the monthly amount he needs to invest to reach his goal, considering an average annual return rate.

Limitations and Points to Consider

Despite being an effective tool, a SIP calculator does have certain limitations.

  • It operates on the assumptions you provide, such as the expected rate of return, which may only sometimes match the actual market performance.
  • It does not account for changes and fees associated with SIP investment.
  • It does not consider the various market conditions and their impact on mutual fund performance.

So, while the SIP calculator is valuable, it should be used as a guide rather than the sole determinant of your investment decisions.

Conclusion: Using SIP Calculator as a Guide for Your Investment Journey

As an investor, your journey is marked by countless decisions. Tools like the SIP calculator simplify this journey by helping you make informed decisions, including when considering new upcoming IPOs. Remember, while incredibly useful, a SIP calculator should supplement your investment planning, not replace it. Using this tool, you can gauge the potential returns and risks associated with investing in a new IPO through systematic investment plans. However, it’s essential to also regularly monitor your investments and make necessary adjustments to ensure successful wealth creation.¬†

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Also Read: Nine Effective Tips to Plan for a Carefree Retirement

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