Investing in mutual funds via a Systematic Investment Plan (SIP) has always been favored by those who wish to assign their money a working job. Over time, the money grows, thereby adding to the investor’s wealth. However, would you like to calculate your expected returns from a SIP investment? Here’s where a systematic investment plan calculator comes in handy.
A systematic investment plan calculator, as the name suggests, calculates the estimated returns on your SIP investments. It is a tool that facilitates your decision-making process when contemplating whether to invest in a particular mutual fund scheme via SIP.
Once you know the amount you can spare for investments every month, the duration, and the expected return rate, you can use a systematic investment plan calculator to estimate your potential earnings. In addition to helping you strategize your investments, the calculator also promotes financial discipline by encouraging regular investments.
How does a Systematic Investment Plan Calculator work?
SIP is an investment avenue where an investor invests a fixed amount regularly in a mutual fund scheme, typically ranging from INR 500 to INR 1,500 per month.
For example, let’s say you invest INR 1,000 per month for 20 years in a SIP. Assuming an average annual return rate of 12%, the maturity amount at the end of 20 years calculated using a systematic investment plan calculator would be approximately INR 35,28,878.
SIP Return Calculation formula:
SIP Return: M=[P * ( (1 + r) ^ nt – 1) ]/ r
Where:
P = SIP installment amount
r = Rate of return on investment/100
n = Frequency of SIP
t = Investment duration in years
M = Maturity amount
Points to consider while computing SIP returns:
There are several parameters that an investor should consider while using a systematic investment plan calculator.
1. Investment Duration: It signifies the length of time for which the investment is made. A longer term typically generates higher returns due to the power of compounding.
2. Rate of Return: It is the next important parameter. While the actual return rate may fluctuate, you can use the fund’s past performance to estimate a realistic rate of return for calculation purposes.
3. SIP Amount: This is the monthly sum you plan for online mutual fund investments. The higher the SIP amount, the greater will be your returns.
A Systematic Investment Plan Calculator is an excellent tool to plan your investments and future financial goals. While it provides a very good estimate of returns based on the inputs provided, one must remember that the returns from SIP investments in mutual funds depend on the performance of the underlying assets and market conditions.
Disclaimer: This article is intended for information and general guidance only and does not constitute financial advice. Investment in mutual funds is subject to market risks. Readers are advised to consult a financial advisor/consultant before making any investment decisions.
