How Can You Make the Best Use of SIP Calculators

SIP or Systematic Investment Plans are relatively new. But they are one of the leading tools of investment. A proper SIP Calculator helps you manage your assets. You can also efficiently and effectively modify, update, and reshuffle your investments.

Previously, salaried employees didn’t have many investment opportunities. There were only FDs, and some occasionally released bonds and PPFs. The investment opportunities in the share market were also out of reach of ordinary people. 

SIP was launched in the Indian financial market in 2002. This opened up infinite investment opportunities virtually.

SIP is operated digitally via websites and mobile applications. So you can put money into investment plans at your terms and financial capacities. 

What is an SIP?

SIP or Systematic Investment Plan is a fantastic way to invest in mutual funds. You can invest either monthly or yearly or lump sum. This depends on how much money you can invest in a fund for a specific duration.

Through SIPs, you can invest a fixed amount of money. This is for a specified period under ever-changing interest rates. 

Remember, the interest rates of the SIPs change. So you should keep track of your investments. 

What is an SIP calculator?

A Systematic Investment Plan calculator is a free and simple online tool. It calculates the returns you may receive on your investments in a mutual fund. It gives you a detailed break-up of your investment. It also gives you details about the total returns you can get for your chosen duration. 

Using an SIP calculator, you can quickly and accurately estimate how much money you have to invest monthly or yearly to reach your financial goals. The tool can be very helpful for planning your long-term or short-term goals. 

In India, what are the different types of SIPs you can invest in?

You should also know about the various SIPs available in the Indian market.

There are four types of SIPs in the market:

1. Flexible SIP: This lets you change the investment amount you initially decided to invest.
2. Step-Up SIP: This is also known as a top-up SIP. It will let you increase your SIP investment amounts at regular or pre-defined intervals. It is suitable for tackling inflation and low-interest rate.
3. Perpetual SIP: This is a type of mutual fund SIP investment. It is supposed to run indefinitely. That means your SIP investment has no fixed period or closing date. You can keep investing till you think it’s time to reap the profits of your SIP investment.
4. Trigger SIP: This is a special type of investment. It takes place under pre-defined circumstances or triggers. 

For example, you can set an action or ‘trigger’ for your SIP. If the NAV value of the SIP drops to certain levels, say 10%, your investment agency or tool will increase your investment amount by 25%. 

Here, NAV stands for Net Asset Value or the price of a ‘share’ of a mutual fund in which you invest through your SIP plan.

How does an SIP calculator work?

The calculations of SIPs can be very tricky. But a general SIP calculator works according to the following mathematical formulation:

FV = P [ (1+i)^n-1 ] * (1+i)/i

Where the variables denote the following items:

FV= Future or Final value, or the amount you can receive on maturity or end of the investment period of a mutual fund scheme.

P= Investment amount in the SIP.

i = Compounded rate of investment return per annum. 

n = duration of the investment (generally for months or years).

r = Estimated or Expected rate of return.

But you don’t have to do these complex calculations. Several SIP calculators are available online. They will do this for you. Most of them are free. 

How you Can Make The Finest Use Of an SIP calculator:

The SIP calculators commonly require three pieces of information. These are the SIP amount, duration, and expected or preferable rate of return on the SIP per annum. Investors should know these 3 factors before using any mutual fund SIP calculator. 

1. The SIP amount is an indicator. It determines your risk-taking capabilities with money. The SIP calculators can easily give you a detailed analysis of your investments. 
2. The duration and target of any SIP are also essential. It determines the type of your financial expectations and goals. Then SIP calculators can suggest you invest in a specific rate, the bulk of money and the duration of time. You will clearly understand the return on investments to fulfil your goals.
3. The SIP calculators are often utilised to determine whether you want to be an aggressive or balanced investor. This is done by choosing the expected return rates for the investments.
4. Some advanced calculators will suggest how much investment you should increase. This will help you to meet your goal with several adjustments. The equations for mutual fund SIP calculators come with many variables. Some of them could be inflation and worsening market conditions. These could also be the changes in interest rates at regular intervals.

Other advantages:

1. The available SIP calculators online are free tools. Anyone can use it to plan and closely monitor his finances. 
2. SIP calculators can be efficiently used to track all your financial goals and expectations closely. It helps you estimate how much money you need to save or invest. This helps in determining the wealth you want to build. 
3. You do not have to provide any extra information, such as PAN or Bank details, apart from the three major inputs, amount, duration, ROI or the rate of return.
4. You can also use the SIP calculators with other freely available online calculators. This way, you may find the best investment opportunities. For example, you can use an FD or RD calculator. Then you can compare it with your SIP investments. This way, it will be easy to understand how your investments will contribute to your wealth creation together or individually.

Conclusion:

Investment SIP calculators were designed to make it easy for investors to understand their investment plans through SIPs.

However, the actual returns offered by a mutual fund scheme often vary. This depends on various factors. Most SIP calculators do not clarify the exit load and expense ratio if applicable for a specific mutual fund.

It looks very simple. But a new investor can face problems while investing in the SIP for the first time. So, if you want to learn a few more things about this, then visit the  Piramal Finances website.