SIP Calculator: A Complete Guide for Beginners in 2022

Investment has been the buzzword of recent times and everyone is into investing now. Among various investment offers, mutual funds have stood out to be a good option for many people. But, investing in mutual funds is no easy game.

Don’t worry even if you are a beginner because every expert was once a beginner. In this article, we will throw some light on what is an SIP and an SIP calculator, how they work and how to use them to reap the benefits. 

What is SIP? 

A systematic investment plan or SIP is a disciplined way to choose wise investment options and increase your interest amount. Using SIP, you can invest in mutual funds more effectively and you can build good wealth for the future. It is a solid approach to managing your funds by regularly investing them while avoiding the risks. 

It works on two principles:

1. Rupee cost averagingThis means you keep investing a specific amount of money for a set period at regular intervals without being affected by the market. This is an interesting approach where you get low units when the market rises and you get high units when the market falls. The main advantage of rupee cost averaging is that you are out of risk and you acquire the investment at a low average cost. 
2. CompoundingThis means if you keep putting money at intervals for a fixed period, you will receive exponential output as your return. To understand this better let us take an interesting example:Suppose a 20-year-old boy starts putting in 500 rupees every month for 30-odd years. Let us calculate this by using a SIP investment calculator. So, because of the compounding effect, he will accumulate 4.17 lakh rupees as his total interest amount. 

What are the benefits of SIP?

There are many benefits of SIP:

• Risk-free investment:With a systematic investment plan, you can avoid potential risks while investing in mutual funds. 
• Financial discipline:You start making better financial decisions after using SIP. You avoid unnecessary expenses and save that money for the future. 
• High flexibility:SIPs are highly flexible which means you can invest according to your wish and not according to pre-fixed rules. 
• High returns:In comparison to any other investment options, this one gives you more benefits and rapidly increases your wealth over time.
• Emergency provision:In case you urgently need money, you can withdraw some money without any loss.

What is a SIP calculator? 

A SIP calculator is a simple online tool that helps you calculate the total amount of money you receive at the end of your investment period. It gives you an estimate of your mutual fund investment by using your interest rate, the months of investment and your principal amount. 

It is a very useful instrument to help you out with multiple calculations and fast results. You can use a SIP investment calculator more frequently to know the market updates. 

Why should you use a SIP calculator? 

Here are the reasons why you should use a SIP calculator:

• It gives you the correct value of the estimates you have made over some time. 
• It helps you plan your future investments and this ensures that you make an informed decision. 
• You can find the best investment options that suit you by using a SIP investment calculator. So, it will help you not only with the calculation but also help you to choose the best for yourself. 
• It saves a lot of your valuable time by calculating your return amount in no time and is user-friendly as well. 
• It gives you precise results, which is why you should start using a SIP calculator before you invest your money in mutual funds. 

How does the SIP calculator work? 

It simply works on a mathematical formula, 

F=P x {[(1 + r)n – 1] ÷ r} x (1 + r)

where “F” stands for the future value of the investment. “P” is the principal amount that you invest monthly throughout the investment period. “r” is your expected rate of return every month and “n” is the number of contributions you make throughout. 

To understand the working of a SIP investment calculator more clearly, you have to get it through an example which goes like this:

If a man spends 7,000 rupees every month at an interest rate of 12% for 10 years, then he will accumulate 16,26,374 rupees at the end of his investment period. 

A SIP calculator is already programmed using the above-mentioned formula so that you don’t have to worry about putting the formula in every time. You just have to fill out the numbers and the results are in front of you in less than a second. 

Here are the steps to know how to use a SIP investment calculator:

• Open the application or visit the website of your choice which has the best SIP calculator. 
• First, enter your principal amount which you are investing every month. 
• Second, add the rate of interest in the requisite bar of the SIP calculator. 
• Third, now select the period, which is the number of years for which you would be investing. 
• Select the type of SIP investment you would like to go through. 
• Now finally, click on the “calculate” option of the SIP investment calculator and you have your result right in front of you. 

Now keep trying different values to get a clear picture of how much you should be investing, at what interest rate and for how long. 

Summing-up:

SIP calculators are programmed by artificial intelligence so they are quite dependable. You should spin them quite often, especially if you are a regular investor. For beginners, a SIP investment calculator can provide details about the market dynamics and help them decide on their investment journey. 

To know more about SIP and learn about personal finance, visit the page of Piramal Finance. They have much more exciting content on SIP, mutual funds, personal loans and other investment options.