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Wednesday, June 19, 2024

How Can You Make the Best Use of a SIP Calculator?

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SIP is a mutual fund investment method that allows investors to contribute a small amount of money towards a mutual fund scheme every month to create a long-term fund. The mutual fund calculator can help you create a solid financial plan for your SIP investment. This tool will help you determine how much your money will grow once your SIP investment reaches maturity. This way, you can plan how much money you need to invest each month to reach your investment target. In this article, we will show you how to use the SIP calculator to create a systematic investment plan. Let’s dig in.

What is a Mutual Fund SIP Calculator?

The mutual fund investment calculator is an online tool that will help you estimate how much return you can get on your SIP investment. With this tool, you can get a clear idea of what your future SIP investment corpus would look like after a certain number of years.

When people invest in a SIP mutual fund, they invest a small portion of money towards the fund every single month. This makes manual calculation of the returns on your every monthly investment a very labor-intensive task. A single mistake and you would need to start calculating from scratch.

The mutual fund return calculator relieves you from such troubles by automatically generating accurate results as long as you input the correct information regarding the monthly SIP amount, the number of months or years you’re planning to keep investing, and an expected average annual return rate.

What are the Types of SIP?

Before we discuss the SIP calculator any further, let’s take a look at the four different types of SIPs you can invest in:

  • Flexible SIP: This kind of SIP plan allows you to change your monthly SIP investment amount.
  • Step-up SIP: Also known as the top-up SIP, this plan allows the investor to keep increasing their SIP investment amount after a certain period of time.
  • Perpetual SIP: This kind of SIP mutual fund investment plan doesn’t have a fixed maturity date. In other words, you can keep investing in this plan as long as you want.
  • Trigger SIP: With trigger SIP, you can trigger pre-determined changes in your mutual fund investment if a specific event occurs.

How Can a SIP Calculator Help You?

In mutual funds, SIP investments are usually a lot more lucrative than lump sum ones. According to investment experts, the SIP investment plan allows you to become financially disciplined and make you develop a big-picture mindset. However, calculating the end results of SIP investment is several times tougher than calculating the final corpus of a lump sum investment.

However, a good mutual fund return calculator can help you with all the necessary calculations and allow you to develop a solid investment plan.

Here’s how the calculator can help you do that:

  • It will help you figure out how much money you need to invest every month to grow your investment to a certain amount after a fixed number of years.
  • This calculator will help you with the total value of your returns, which is very important to create a good investment plan.
  • It will help you determine how much your investments can grow after a certain period of time, depending on an average annual return rate.

How Does a Mutual Funds SIP Calculator Work?

All MF calculators work using a specific mathematical formula to derive the maturity amount of your SIp investment. Here’s the formula:

M = P * [{(1 + i) * n – 1) / i} * (1 + i)]

Here,

  • M = Total amount of money after your SIP investment matures.
  • P = Your monthly SIP investment amount.
  • n = total number of SIP payments you have made
  • i = average monthly return rate

Let’s take a look at an example to understand how the calculation works more clearly. 

So, let’s say you are planning to invest Rs. 1,000 every month toward a mutual fund SIP for the next 12 months. And the average rate of return is 12% per year.

The return rate per year will be recalculated into decimals. So, the average monthly return rate for this investment = {(12/12) / 100} = 0.01

Therefore, after the end of your tenure, you will receive the following:

M = 1,000 * [{(1 + 0.01) * 12 – 1) / 0.01} * (1 + 0.01)] = Rs. 12,809

Please remember that this is just an example to help you understand how the MF return calculator works. The actual value might be slightly different since the rate of return changes constantly depending on the market conditions. As a result, the actual maturity amount might be slightly on the higher or lower side.

The Benefits of Using a SIP Calculator

There are many advantages to using a SIP calculator. Here’s a list of some of the significant benefits of this calculator:

  • Manually crunching the SIP investment data might take you hours. However, that’s not the case for a mutual fund return calculator. With this tool, you can get accurate estimations within seconds of inputting the investment data.
  • Online SIP calculators are pretty easy to use. All you have to do is input the monthly SIP amount, expected yearly return rate, and the tenure to get the maturity amount of your investment.
  • This calculator can help you have a clear idea of how much money you need to invest every month and for how long you need to keep investing to meet your financial goals. This way, you can create a solid long-term investment plan.

Wrapping It Up

A mutual fund SIP allows everyday salaried professionals and other people to invest a small portion of their monthly income to create a long-term fund. Thanks to this feature, more and more people have started investing in mutual funds. It not only helps them create a solid financial cushion but also helps enrich the country’s finance market. You can plan your next mutual fund investment today with the help of a mutual fund calculator and start investing in growing your money.

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