A Systematic Investment Plan (SIP) Calculator refers to a tool available online that helps you compute the estimated returns on your SIP investments. With an SIP calculator, you can get a better idea on how much you should invest to reach your goal.
Note that this online tool does not calculate the actual returns as it does not take into account various factors, for example, the expense ratio of the mutual fund scheme.
So, if you’re considering investing in SIP, use an SIP calculator to plan your investments diligently.
To know how an SIP investment calculator works, read on!
How does an SIP Calculator Work?
A mutual fund SIP return calculator has been designed on the basis of the formula of compound interest. You can understand how it works by taking a look at this formula:
A = P [{(1+i)^n-1} ÷ i] x (1+i)
Here,
A = Future value, i.e. the total portfolio value at the end of investment tenure
P = The amount one invests at fixed intervals
i = Compounded rate of interest
n = Investment tenure (in months)
Let’s take a look at an example:
Suppose an individual invests Rs. 2,500 every month for a period of 3 years, and the expected rate of return is 15%.
In that case, i = 15 ÷ 100 ÷ 15 = 0.01
As per the above formula, the future value will be Rs. 1,14,199. The total estimated returns will be Rs. 24,199 following an investment of Rs. 90,000 over a period of 36 months.
Benefits of Using SIP Calculator
Here are some of the advantages of using a systematic investment plan calculator:
Assists in Financial Planning
Helps you to plan your investment on the basis of your financial goals and time horizon
Saves Time
Displays accurate results quickly after investors enter the required values. Thus, this financial tool enables individuals to save time taken for calculating the estimated returns manually.
Lucid Interface
It’s extremely easy to use. You need to enter only a few details to calculate the estimated returns that you can earn on your SIP investment.
Now that you know how a mutual fund SIP calculator works, it is imperative that you understand the concept of a systematic investment plan.
What is SIP?
A systematic investment plan is a facility offered by asset management companies that enable investors to invest a fixed sum of money at regular intervals (monthly, quarterly, and half-yearly).
By choosing this investment route, individuals can allocate funds to a scheme in a time-bound manner. Thus, they do not have to worry about the changing market conditions. You can start your SIP with an amount as low as Rs. 500.
Also Read: Difference Between SIP and Mutual Funds
Types of SIPs
Here are some of the most popular types of systematic investment plans:
Flexible SIP
Commonly referred to as flexi SIP, this type of systematic investment plan allows you to alter the instalment amount according to your convenience. If you have worries about the market scenario or have cash flow concerns, you can consider opting for a flexible SIP.
Top-up SIP
A top-up/step-up SIP allows investors to raise their instalments by a fixed amount at regular intervals. For example, let’s say that you start investing Rs. 2,000 every month in an index fund. You can instruct the asset management company to increase the instalment amount by Rs. 500 every six months. Thus, post completion of the six months, you’ll be paying Rs. 2,500 for the next six months, and so on.
Perpetual SIP
Investors may choose to invest in a mutual fund scheme for a fixed period of time. In that case, they have to mention the start as well as the end date of their investment. However, if individuals do not mention the end date in the SIP mandate, it is a perpetual SIP investment. In case you choose this option, you can continue investing in a mutual fund scheme via SIP for as long as you want. In case you want to stop the SIP, you’ll have to instruct the fund house to do so.
Also Read: Easy Ways To Invest In Mutual Funds Online
How to Invest via SIP?
To invest via a systematic investment plan, investors need to follow these steps:
Step 1: Select a mutual fund scheme based on your financial goals and risk appetite
Step 2: Choose the duration of investment
Step 3: Complete the KYC process and submit the application form via online or offline mode.
Final Word
Now that you know how an SIP calculator works, make sure to use it to plan your investment and reach your financial goals in the best possible manner. With adequate planning, you will be able to build a savings portfolio as per your needs. In addition, you will be able to grow a large corpus of money over the years.
With Navi Mutual Funds, you can start your SIP with a nominal amount of Rs. 500. In return, you get to enjoy the lowest expense ratio with no entry and exit load. All you need to do is download the Navi app and start investing right away.
Frequently Asked Questions
What if I forget to pay my monthly SIP instalment?
On account of the auto-debit facility, the instalment amount for your SIP investment gets debited from your bank account automatically on the predetermined date.
What happens if I cannot pay my SIP instalment due to insufficient funds in my bank account?
In case you don’t have adequate funds on the SIP date, you’ll miss an instalment. Note that you do not need to pay any penalty. Moreover, the SIP investment remains active. However, if you miss the instalments multiple times, the SIP gets cancelled.
For how long can I invest in a mutual fund scheme via a systematic investment plan?
For SIP investments, there are no restrictions related to the duration of the investment. You can invest in a mutual fund scheme for as long as you want.
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