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If You Are investing in SIP Make Mutual Funds SIP Calculator Your Best Friend

04 Jul 2024

Systematic Investment Plan (SIP) is an easy way to invest small amounts on a regular basis, to help grow your wealth over a long period of time. In Mutual funds, it is one of the most robust ways to diversify portfolio and enjoy high returns over time and you’ll need the Mutual Funds SIP calculator regularly to project returns. SIP rides on the waves of market volatility. Investors buy more units when the market falls (volume gain) and fewer when market climbs (value gain).

You can deposit a fixed amount in a SIP scheme every month or quarterly, depending on your convenience. Payments can be made through post-dated cheques or through the auto-debit facility.

Here’s what you need to do to begin investing

Choose your plans well

Fill up an application form

Fill your SIP mandate form and indicate your choice for the SIP date, on which the amount will be invested. Following SIPs will be auto-debited through a standing instruction given or post-dated cheques.

Submit forms and cheques to the office of the Mutual Fund / Investor Service Centre or nearest service centre of the Registrar & Transfer Agent.

The amount will be invested at the closing Net Asset Value (NAV) of the date of realisation of the cheque.

The biggest advantage of investing in SIP online is that you do not need to time the market but keep the Mutual Funds SIP calculator handy as you need to calculate your returns regularly. If you have to time the market, you might be away while markets are doing well or may enter at a wrong time when either valuation have peaked or markets are on the verge of declining. But with SIP, you have to invest every month which means you’re inevitably investing in both highs and lows. That’s a safe blanket to lie under.

Here’s a checklist of the things you need to bear in mind before online SIP investment.

List down your goals and work out a plan to achieve them through SIP

Fix on the monthly/quarterly SIP required to achieve your goals

Identify the scheme(s) in which you would like to invest

Invest for the long term as the twin benefits of power of compounding and rupee-cost averaging work through different market cycles

Diversify your investments by investing in multiple SIPs with different schemes to optimise returns as per your needs

But every investor wants to know how SIP returns are calculated. And two of the most popular ways are IRR and Mutual Funds SIP calculator. If a fund is non-SIP then returns are easy to calculate because the entry date and exit date are defined beforehand. However for SIP, although the exit date and exit value are known, money goes out from the account multiple times hence, the date of entry has several dates. Besides, the amount of investment might increase or decrease during the course of SIP. So if you’ve been investing Rs. 3000 every month, you might want to take it up to Rs. 5000 or bring it down to Rs. 2000 per month.

IRR is a popular method of calculation

The most popular method is Internal Rate of Return or IRR. IRR is useful not only to calculate SIP returns but also for estimating returns from money back insurance policies and bond yields. This method equates the discounted value of the stream of investments (also known as cash outflows) to the discounted exit value of the investment (cash inflows). The discount rate that equates the present value of cash outflows and the present value of cash inflows is the rate of return earned by an SIP.

Here’s how the Mutual Funds SIP calculator works

The formula is slightly complicated and here’s where the Mutual Funds SIP calculator comes handy. You need to add the amount you want to invest monthly. Then key in the expected rate of interest on the amount invested. It’ll show you your returns over the years based on the desired rate of interest. The calculator displays how small investments made consistently reaps lucrative returns over a period of time due to power of compounding. Use this SIP return calculator to check the returns generated by your SIP investments in this fund till date.

You can also use the ubiquitous MS excel to work out the returns in no time. MS Excel has a built in function for IRR. You need to input the values and the IRR formula works out the calculation for you.

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