You must have used the SIP Calculator many times, but are you aware of its true potential? This tool can even be used by individuals with no financial background. And you can also modify your financial goals with the help of this tool. Such a good tool should not be underestimated.
To develop an in-depth understanding of this calculator, this article provides an easy explanation of the formula based on which the calculator estimates your returns. It will also provide simple calculations so that you can learn the working of this amazing calculator.
You will also get to know about the importance of the SIP Return Calculator along with some tips that will help you make maximum use of this ultimate tool. So let’s get started with a definition of the tool.
What is the SIP Calculator?
This calculator is an online tool that can help you make a precise estimation of the future value of your total investment in mutual funds. For example, you can estimate the future returns on your 3-year, 5-year or 7-year monthly investment plan of Rs 3,000. You need to put certain inputs in the calculator, and they are:
- Tenure
- Fixed Amount
- Number of payments
- Expected Rate of Returns
To calculate the future investment values, the SIP Return calculator works on a specific formula. So let’s learn about it.
How Does the SIP Calculator Work?
The mechanics behind this popular tool are based on a formula that is as follows:
FV=P×(r(1+r)n−1)×(1+r)
It may seem a complex formula to you, so let’s simplify it by understanding what each letter means:
- FV = the value of your future investment
- P = fixed investment amount at a periodic interval
- r = rate of return for each interval
- n = number of payments to be made during the plan
Now that you have understood the formula, it will be easier for you to understand the calculations.
Calculations
If you want to calculate the future returns for your systematic investment of Rs 1,000 for 3 years, and the expected rate of returns is 12% then you can precisely calculate the final value in the following way:
P = Rs 1,000
r = 0.003
n = 36
FV = 1,000 × {([1+0.003] ^36-1)/0.003} × (1+0.003)
FV = Rs 40,536
This means by the end of your systematic investment plan, you will have a total investment value of Rs 40,536. And your returns over the principal investment value (Rs 36,000) will be more than Rs 4,500.
Although the best SIP can give you great benefits, without this calculator, it would consume an enormous amount of time to calculate your future returns. This shows how significant this tool can be for you. And to learn more about it, let us proceed with the next section.
Why is the SIP Calculator Important for You?
Although you may have used the SIP Return Calculator multiple times. But you might not be aware of the following benefits of the tool:
Set Realistic Financial Goals
Since the calculator helps you determine the precise value of your future returns from mutual funds, you can make more realistic financial goals in accordance with your needs and financial conditions. You can also track your growth throughout your investment plan.
Shows the Power of Compounding
In systematic investment, the power of compounding increases your returns many times over if you sustain your investment for long enough. And the calculator can show how powerful compounding can be by giving an estimation of your future returns.
Improve Your Investment Decisions
By putting the necessary inputs in the SIP Calculator, you can try multiple investment plans and find the best that can help you achieve your long-term financial goals, like purchasing a house or securing the future for your children etc. You can also adjust your budgets accordingly.
Convenient and Time Saving
This online calculator is user-friendly and available for free on the internet. Further, it also saves a lot of time on manual calculations for you that you can utilize to compare different mutual funds based on other measures. This way, you can find a promising scheme more effectively.
Despite these benefits, there are some limitations that are stopping this tool from being the ultimate solution for investment planning. For example, the SIP Return Calculator does not consider tax implications and inflation in its calculations. And this can affect your final returns.
You need to do these steps on your own once you get the value of the final investment from the calculator. Similarly, there are various other ways through which you can make optimum use of the calculator.
Tips To Make Optimum Use of the SIP Calculator
If you want to maximize the benefits of the SIP Calculator, then follow these tips:
Choose a Long-Term Investment Horizon
While calculating your return, try to lengthen your tenure for at least 5 – 7 years. You can set it for even longer. This way, you will be able to gain huge benefits due to the impact of compounding.
Be Disciplined Throughout The Plan
If you want to get the benefits of compounding and cost averaging estimated from the calculator in real terms, then you will have to remain consistent throughout your investment plan.
Keep Monitoring the Market
After you start your best SIP with the help of this calculator, keep monitoring the market conditions and make necessary adjustments in your plan. You need to leverage the flexibility of systematic investment to swiftly achieve your goals.
Only Use Reliable Platforms
Since the calculator is available for free on several online platforms, there are various platforms that are not reliable for the calculation. Do not trust these platforms, as they can give you false estimations.
Now that you have learns about the calculations and important tips regarding the use of the SIP Returns Calculator. It is the right time to end this discussion with a conclusion.
Conclusion
To conclude, this calculator is a highly versatile tool and in the hands of smart investors, it can significantly improve their investment decisions. With the help of this tool, anyone can easily calculate their future SIP returns. And since this tool is easy to use, these attributes make it the ultimate tool for investors to predict their future returns.
You must be logged in to post a comment.