How To Plan Your Investment Using SIP Calculator

How To Plan Your Investment Using SIP Calculator

If you're someone who is just starting out on your financial journey or entering the world of investment, the first type of investment that one may su

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If you’re someone who is just starting out on your financial journey or entering the world of investment, the first type of investment that one may suggest to you is mutual funds through SIPs. But just like any other investment plan, a mutual fund through SIP also requires a little planning and research.

In order to plan your SIP investment, a mutual fund SIP calculator can be very helpful. The calculator will help you compute complex financial calculations by taking user-defined data.

What Is A Systematic Investment Plan (SIP)?

A systematic investment plan, commonly called SIP, is a planned investment approach for mutual funds at a regular interval, such as weekly, monthly, or quarterly. It is analogous to a recurring deposit, the difference being, here the money is invested in a mutual fund.

SIPs are very common among millennials who are just starting out on their investment and savings journey. The minimum SIP amount can be as low as ₹100 per month.

 

Why Invest In An SIP?

As the name suggests, SIPs are a systematic method of achieving your financial goals. SIPs offer the following financial benefits:

  1. SIPs ensure rupee cost averaging. This means that SIP allows you to buy fewer units of a fund when the market is high and vice versa. This will help you stay away from market volatility and ensure consistent returns.
  2. The tenure of a systematic investment plan is flexible but if you stay invested for a longer period of time the chances of higher returns increase because of compound interest. With the power of compounding, you can earn income on the amount you invested added with the income earned. And repeating the process (long term), you can generate a big corpus.
  3. The auto-debit facility makes it simpler and more transparent.

 

What Is An SIP Calculator?

A mutual fund SIP calculator is an online financial tool to help you determine the expected rate of return on your SIP investment at the end of your SIP tenure. The SIP calculator can help you fulfill your financial goals by determining investment amount, possible capital gains, and estimated maturity amount.

The SIP calculator considers two approaches- the investment amount approach and the target amount approach, both of which work on user-defined data. All you have to do is enter the amount you wish to invest or the target amount, the expected rate of return, duration of investment, and step up if any.

 

Planning Your Investment Using An SIP Calculator

Prior to any investment, a deep and thorough understanding of the market is essential. It is also important to consider your investment goals and evaluate if the investment objectives are aligned.

Using a mutual fund SIP calculator will help you plan your investments. Here’s how:

Evaluate Maturity Amount

As discussed earlier, SIP calculators consider two approaches- the investment amount approach and the target amount approach. This gives you a clear understanding of your monthly SIP amount to achieve the target maturity amount.

Data Representation

SIP calculators demonstrate data in both tabular and graphical form, which can help you interpret data and make calculated decisions.

Market Scenario

Mutual funds are subject to market risks. Based on this, SIP calculators provide calculations on the basis of three growth scenarios:

  • Above average
  • Average
  • Below Average

This will help you consider all possible market scenarios and choose what’s best to meet your investment objectives.

Step Up

Stepping up is optional, but an integral part of the investment that helps you increase your annual mutual fund investments’ amount. Doing so will ease your process of reaching your financial objectives and a SIP calculator allows you to enter if you’re thinking about stepping up your SIP investments.

Better Decision

Using the SIP calculator can help you make more informed decisions about your SIP investments which in turn will help you earn significant returns.

 

Final Thoughts

Wealth planners and finance experts believe that investing in mutual funds through SIP is the first step in becoming financially disciplined and getting into the habit of saving. The Systematic Investment Plan Calculator (or, SIP return calculator) is a great tool to help you get started on this journey. You can determine your maturity amount at the end of your SIP tenure.

But it must also be kept in mind that the value of assets can either grow or decline in the future because of which mutual fund investments are subject to market risks.

 

FAQs

  1. Which SIP is best for 5 years?

Parag Parikh Flexi Cap Fund is the best performing fund as of August 2021. With a fund size of ₹111,360 crores, it has been providing a compound annual growth rate (CAGR) of 20.73%.

 

  1. What is the average return on SIP?

SIP returns vary from one fund to another. Usually, for large-cap equities, a return of 12-18% can be expected, and the expected rate is around 14-17% from mid-cap equities and for a long-term debt-based mutual fund, one can expect a return of 6 – 9 % p.a.

 

  1. Is annualized return the same as CAGR?

Annualized return is similar to returns for the entire year whereas, CAGR or compound annual growth rate is the average per annum of your investment.

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