Planning long term investment goals has become a lot easier with the SIP calculator. Because this versatile tool allows investors to calculate precise future returns and compare different mutual funds as well.
But unfortunately, there are some users who are not able to use this simple tool for some reason. And this is stopping them from getting these significant benefits.
If you are also finding it challenging to use this tool, then this guide is for you. It provides the simplest way to use the calculator along with a workable example.
Besides this, you will also get to learn about the benefits of the SIP return calculator in detail. And in the end, there are some tips and limitations regarding this tool that will protect you from any kind of disappointment. So, let’s get started with an easy explanation of the calculator.
What is the SIP Calculator?
It has an online calculator that can be used to estimate potential returns from the systematic investment in mutual funds. You can predict your future investment values based on the following inputs:
- Fixed Amount
- Duration of the plan
- The Expected Growth Rate
You may have these details by your side but what if you do not know how to use this online tool?
There are several old school investors who still seek help from experts to calculate their future returns and this increases the costs for them. If you are also one of them, then now is a good time to learn how to use this tool.
How To Use the SIP Return Calculator?
The SIP Calculator is a user friendly tool that is available on several online platforms for free. You can follow the steps below to use this online tool for calculating your returns:
Step 1: Find a trusted SIP return Calculator online platform
Step 2: Enter the monthly investment amount of your choice
Step 3: Set your specific investment duration (e.g., 1 year, 2 years etc.)
Step 4: Fill in the expected annual rate of return
Step 5: Get your final investment value and review it
By following these steps, you can easily get what you want. But did you ever think about how this tool works?
As Dr. Vikram Sarabhai said, “We must be guided by our curiosity and a dwelling desire to explore what is unknown to us”.
The next section will enlighten you about how your future SIP returns are calculated by the tool.
Understanding the Calculations with an Example
Suppose you want to find future returns for the systematic investment of Rs 5,000 for a tenure of 3 years. And the expected annual returns for that duration are 12%, then the calculator will use the following formula to give you precise future investment values:
Remember that time when mathematics was your favorite, and then letters started to come in the formula. A few of you will understand the pain of finding X all the time.
But this time, your money is at the stake and you don’t to want to be careless here, so let us understand what these letters mean:
- FV = The future value of your investment
- P = Fixed systematic investment each month
- r = The fixed rate of interest each month
- n = The number of systematic payments
Example:
Now, considering the above investment plan, let us find the value of each letter:
P = Rs 5,000
r = 1% = 1/100 = 0.01
n = 36
Now, put these values in the formula to get the final investment value:
FV = 5,000 × {([1+0.01] ^36-1)/0.01} × (1+0.01)
FV = 5,000 × 43.08 × 1.01
FV = Rs 2,17,554
Thus. On the total investment of Rs 1,80,000 (5,000 × 36) you will get whopping returns of Rs 37,554, in just three years.
You can change the tenure and fixed amount as per your needs and calculate the precise investment values at the maturity of your plan.
Now that you have understood the calculations, can you tell besides making the calculations of returns easy for you, what are some other benefits of this tool? If not, don’t worry, just carefully read the next part.
Benefits of the SIP Calculator
The following benefits of the calculator will amaze you for sure:
Precise Goal Setting
With the help of this online SIP calculator, you can get precise values of the future returns on your preferred investment amounts. This way, you can set your long term goals with more precision.
Analyze Different Schemes
This calculator can help you assess different mutual funds based on their expected returns and risk profiles. Hence, you can find the best SIP plan that suits your individual goals.
Time Saver For You
This easy to use tool will save a lot of time on manual calculations. You can use that excess time to compare multiple mutual funds based on other parameters as well like fund managers, past performances, etc.
When it comes to using a tool, tips and tricks always come in handy. In the case of the SIP calculator, there are also some tips that you can use to get better results.
Important Tips to Get Better Results from the SIP Calculator
While calculating your returns, you can keep the following tips in mind so that you can achieve better results:
- The expected rate of return should be realistic.
- Try different tenures to see the impact of compounding.
- Always consider inflation while calculating returns.
- Do not forget to deduct applied taxes from the returns.
Keep reviewing your SIP plan on a regular basis so that you can adjust your goals and expenses to achieve your long term financial goal.
As they say, “Nothing is perfect”. There are some limitations of this calculator as well. And you cannot ignore them. So carefully go through and read twice if needed.
Limitations of the SIP Calculator
The SIP return calculator is a highly versatile tool but its uses do not go beyond a certain limit. It is strongly suggested you do not completely rely on this tool to decide upon the best SIP plan and the following limitations will tell you why:
Takes Only Fixed Returns For Calculations
This online calculator takes only constant values of expected returns to calculate investment values for the entire tenure. But as you know, mutual funds are subject to market risks, hence you cannot expect the same rate of returns throughout your plan.
Does Not Include The Risk of Market volatility
Since this calculator does not include the market fluctuations and provides you with the investment value that keeps growing at the expected rate you put in. The final results can be misleading then the actual returns. Hence you should not ignore the factor of market volatility.
Excludes Taxes and Inflation Costs
The SIP return calculator does not deduct the taxes on your capital gains before showing the final values. It also does not account for the inflation costs that could affect your returns. Your final returns may be higher than their actual value in real time.
It is very important for you to consider all the factors that can affect your final returns. This way, you will always get precise investment values that you will have at the end of your best SIP. Now, let's conclude this discussion.
Conclusion
This tool has been helping investors for decades. But investors often get disappointed when they compare their actual returns with the value calculated by the calculator. If you do not want to be disappointed like them, then do not forget the tips suggested above. Those tips will always help you get the most precise future returns on your SIP investment.
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