Getting precise values of future returns was never an easy task. But ever since theSIP Calculator has come, it has been helping investors determine the best investment plan within minutes. How?
Well, this calculator gives you an estimation of your future investment values. And based on that information, you can hunt down the most suitable mutual funds for you.
But it is not that simple to understand. This is why you are reading this article. In this post, you will not only know about the potential benefits of the SIP returns calculator but also learn some practical applications of it as well.
And since “Perfection is an illusion”, you will also get to know about the limits of this calculator. So let’s get started with the definition of it.
What is the SIP Calculator?
It is an online calculator that helps investors determine their future returns from their best SIP investments. The calculator works based on certain inputs that are the tenure, fixed amount, periodic interval and the rate of annual returns.
It does not matter whether you want to calculate returns for 1 year or 50 years and the fixed amount is Rs 100 or Rs 1,00,000. The SIP returns calculator can precisely give you the investment value that you will get the maturity of your plan.
Such a powerful tool must come with a good amount of benefits. So the next section will talk about the benefits of the SIP calculator.
What are the benefits of the SIP Calculator?
If you have used the calculator then you must have gotten the following benefits:
1. Complex Calculations Got Easy
This online calculator can do complex calculations of your mutual fund investment plans and provide you with the estimated value of the future returns on just one click. This has saved a lot of time for investors as well. And being a digital tool, it also eliminates human errors thus making the final value highly accurate.
2. Comparison of Different Mutual Funds
Once you are clear about the inputs that are tenure, fixed amounts and expected rate of returns. You can compare several mutual funds based on these inputs with the help of the calculator to derive the precise value of each fund’s potential future returns.
3. Available For Free On the Internet
This calculator is available for free on several online platforms. Such a great level of accessibility for a highly versatile tool is very rare to find. Many investors are already using this tool and its accessibility on the internet is also helping new investors explore different schemes.
4. Make Tailored Investment Plans
The beauty of this tool is that it can help you find a certain scheme that specifically suits your financial goals. This can boost your investment planning by helping you minimize the time you take to start your investment journey. This is also necessary to minimize market risks.
There is no doubt that the SIP returns calculator is helping several investors improve their investment planning. But did you ever think exactly how this calculator works and what the formula is that it uses to precisely estimate your future returns? Let’s find out.
How Can You Calculate Future Returns With the SIP Calculator?
This calculator works on a complex formula that is written below. See if you are familiar with it:
FV =P × {([1+r] ^n-1)/r} × (1+r)
Before proceeding further with the calculations part, let us first grab the meaning of each letter in the formula.
· FV = Future value of your investment
· P = Fixed SIP payments at each interval
· r =Periodic rate of return for each interval (month, quarter or year)
· n = number of payments you make for the entire tenure
Workable Example:
Suppose you want to start a SIP of Rs 1,000 for 5 years and the expected annual rate of return is 12%, now let us calculate your final returns-
FV = 1,000 × {([1+0.002] ^60-1)/0.002} × (1+0.002)
FV = Rs 73,477
This means, on the total investment value of Rs 60,000, you will be earning more Rs 13,000 returns. And this is due to the compounding effect.
Anyway, in the hands of a smart user, the SIP returns calculator can do wonders. Its practical applications are way beyond traditional boundaries provided that the user is smart enough.
What are the practical applications of the SIP Returns Calculator?
This versatile tool has the following applications other than calculating precise future returns:
1. Planning Realistic Financial Goals
With the help of the SIP calculator, you can plan realistic financial goals that you can achieve in your desired tenure. Since the calculator provides the precise value of future returns, you can set your tenure as per your financial capacities and find a perfect duration for your plan.
2. Assessing the Risks of Different Mutual Funds
You can assess multiple mutual funds once you get the value of their future returns. Some schemes might give higher returns but also possess greater risks, so this tool can help you find the scheme that suits your risk appetite. It is very important for you to make wise investment decisions.
These applications are highly useful for investors but you should not get carried away by these uses and benefits. Because this tool has some considerable limitations as well.
What are the Limitations of the SIP Calculator?
Despite the versatility of the tool, there are some limiting factors that are stopping the SIP returns calculator from becoming a one-stop solution for investment planning. Carefully read the following factor:
· The risk of market volatility
· Tax deductions on capital gains
· Costs of investment
· Changing rate of annual returns
· Neglecting the impact of inflation
The calculator does not consider the above factors while deriving the value of future returns on your best SIP investment. Hence, you should not take the estimated value as the most accurate one.
You must evaluate your returns based on the above factors. This way, you can save yourself from getting disappointed. Now let’s conclude this discussion.
Conclusion
Smart investors will always try to make the maximum use of any tool they encounter. Even though the SIP calculator has significant limitations, but still its uses cannot be ignored. It is just that you will have to take extra care while using this tool. After all, this calculator saves a lot of time from manual calculations and you can use that time to do some extra precautionary measures.
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