What is SIP Calculator & How to Calculate SIP Return
With the ease of monthly fixed payments and the expert guidance of professional fund managers, it's no wonder that Systematic Investment Plans (SIPs) have taken the investment world by storm. SIP provides a disciplined approach to investing. Investors frequently use the SIP calculator to estimate the possible profits from SIP investments.
In this article, we'll explore an easy and efficient way to calculate SIP returns.
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What is a SIP Calculator?
A SIP calculator is an online software that helps you estimate the future worth of your investments via systematic investment plans. It enables you to calculate the prospective returns on your SIP investments by considering numerous criteria, such as the contribution amount, investment period, estimated rate of return, and investment frequency.
How to calculate SIP returns?
You must consider a few simple steps to determine returns. These include:
Step 1: Determining the investment amount
The first step in calculating SIP returns is to decide on the investment amount. This refers to the sum you wish to invest periodically in a mutual fund scheme. The investment amount can be chosen based on financial goals, risk tolerance, and capacity.
Step 2: Identifying the investment tenure
The investment period refers to the duration you plan to invest in a specific mutual fund scheme through SIPs. It is crucial to determine this period as it directly impacts the returns. The lengthier the investment tenure, the greater the potential for compounding growth and higher returns.
Step 3: Estimating the expected rate of return
The expected rate of return is the annual growth rate that you anticipate from the specific mutual fund scheme. While historical returns can serve as a reference, it is essential to mention that past performance does not guarantee future results. You must carefully research and conduct a thorough analysis to reach a realistic expectation.
Step 4: Considering the frequency of investment
SIPs allow you to contribute a fixed sum at regular intervals, typically monthly or quarterly. The frequency of investment plays a significant role in determining the overall returns. More frequent investments enable the benefit of rupee-cost averaging, reducing the impact of market volatility and potentially enhancing returns.
Step 5: Using the SIP calculator
Once the details above are determined, it is time to leverage the SIP calculator. Several financial institutions and mutual fund websites offer user-friendly calculators. Input the investment amount, investment period, expected rate of return, and frequency of investment into the calculator. The tool will then provide an estimated investment value at the end of the SIP maturity.
What are the perks of using a SIP Calculator?
Now that you understand how SIP is calculated, let's discuss the advantages of using a SIP calculation tool.
- Accuracy: The SIP calculator provides near-precise results based on your information, enabling you to make informed decisions.
- Visualisation: It helps you visualise the potential growth of your investments, thereby setting realistic expectations.
- Goal planning: By adjusting the investment amount, duration, or expected rate of return, you can assess the impact on your financial goals and make adjustments accordingly.
- Comparison: The calculator lets you analyse several mutual fund plans and determine which best meets your financial goals.
- Investment monitoring: Once you have started your SIP investments, you may use the SIP calculator to monitor their progress. You can change your investment plan by comparing actual returns to expected returns if required.
Why should you not depend solely on the SIP calculator?
Using a SIP calculator has its limitations and drawbacks too:
- It is based on assumptions and past data that may or may not correctly forecast future market performance.
- The calculator does not consider unpredictable market swings or events influencing investment returns.
- The calculator assumes a constant rate of return during the investment term, ignoring market volatility.
- It excludes taxes, fees, and costs, which can significantly influence accurate results.
Conclusion
This calculator lets you understand the possible investment returns and make educated decisions. Remember that while a SIP calculator gives estimates, actual returns may differ. Before making investing selections, talking with a financial professional or undertaking extensive research is best.
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