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How to Use a SIP Calculator to Plan Your Investments?

SIP Calculator

Investing in mutual funds through Systematic Investment Plans (SIP) has gained popularity among individuals seeking financial discipline and long-term wealth creation on NSE and BSE. However, determining the ideal amount to invest from your monthly income is daunting. This is where a SIP calculator is useful. 

By simply inputting key details such as investment tenure, expected returns, and desired corpus, the calculator swiftly computes the monthly investment required to achieve your financial goals.

Let’s explore how to effectively utilise a SIP calculator to invest in the share market.

What is a SIP calculator?

A SIP calculator is a useful tool that provides individuals with an estimate of the returns they can expect on their mutual fund investments made through Systematic Investment Plans, including investments in stocks within the Sensex and Nifty indices.

By inputting your monthly SIP investment and projected annual return rate, the calculator estimates the wealth gain and expected maturity amount, providing you with a rough estimate for your investment. With the rising popularity of SIP investments in mutual funds, especially among millennials, these calculators have become invaluable for potential investors.

However, while the calculator can give you an idea of your mutual fund investments, it’s important to note that the actual returns may vary due to various factors. It’s also worth mentioning that the calculator doesn’t account for exit load and the expense ratio, if applicable.

How do SIP calculators work?

A SIP return calculator operates using the following equation:

M = P × ({[1 + i]^n – 1} / i) × (1 + i).

In this equation:

  • M represents the amount you will receive upon maturity.
  • P denotes the amount you regularly invest.
  • n signifies the number of payments you have made.
  • i denotes the periodic interest rate.

For instance, if you wish to invest Rs. 1,000 per month for 12 months at a periodic interest rate of 12%, the monthly rate of return is as follows:

12%/12 = 1/100=0.01.

Therefore, M = 1,000 × ({[1 + 0.01]^12 – 1} / 0.01) × (1 + 0.01),

which results in approximately Rs 12,809 in a year.

Note: The interest rate for SIPs may vary depending on market conditions. It can either increase or decrease, consequently impacting the estimated returns.

Advantages of a SIP calculator

A SIP calculator offers several advantages for investors. 

  • It helps plan your investment based on your preferred amount and tenure. You can determine the monthly investment required to achieve your financial goals by inputting these details.
  • A SIP calculator helps you estimate the total value of your investments at the end of the SIP tenure. This feature enables you to evaluate the potential returns and make informed investment decisions.
  • It provides accurate results, eliminating the need for manual calculations and reducing the chances of errors. This accuracy helps you save valuable time and ensures you have reliable investment projections.
  • A SIP calculator is designed to be user-friendly and easy to use. It typically features a simple interface to easily navigate and understand the calculations.

How to use a SIP calculator?

Here’s a simple guide on how to use a SIP calculator:

Step 1 – Enter the amount you want to invest every month.

Step 2 – Choose how long you want to invest and the expected returns.

Step 3 – Once you provide these details, the SIP calculator will show you the total amount you’ll invest, how much it will grow, and the returns you can expect for that period.

Step 4 – If you want to adjust your investment goals, you can change the monthly investment amount or the investment duration to see how it affects your results.

Conclusion

SIPs (Systematic Investment Plans) are a popular way to invest in mutual funds in the stock market. They are great for achieving long-term financial goals like paying for your child’s education, wedding, buying a car, or saving for retirement. With a SIP calculator, you can plan your investments smartly and reach your financial goals with ease.


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