It is not clear when the SIP calculator entered the financial markets, but ever since it arrived, investors are happily calculating the returns on their systematic investments to hunt for the best plan.
And with time, the user base of this online tool also increased as people got interested in mutual funds after hearing their potential benefits. But this also caused an inflow of several tutorials on how to use this calculator.
These hard to understand tutorials with technical language did not satisfy many investors who did not have a strong background of financial sector.
So to help such people, this article provides an easy definition of the tool and easier explanation on the working of this tool with the help of a simple example.
You will also learn about the benefits and different ways to use this online tool. So let’s get started.
What Is a Mutual Fund SIP Calculator?
The SIP Return Calculator is a financial tool that you can use to calculate your future investment values and returns on systematic investments. This tool is mostly available for free on several online platforms. And this makes it highly accessible among investors.
To calculate your returns with the help of this tool, you need to input some important data regarding the investment amount, its duration, and the rate at which the fund is expected to grow.
For example, suppose you want to find the future returns on your monthly SIP of Rs 1,000 that you will sustain for the next 3 years.
By putting these inputs in the calculator, you can easily get the precise idea of what you will earn from your investment. Thus, you can find the best SIP for you. But exactly how does this calculator work? Let’s learn the formulae behind it.
How Does the SIP Calculator Work?
Take a good look at the following formula:
What do you see? For most of you, it is just the combination of some letters and numbers. But this combination has made it very easy for investors to calculate their future SIP returns. So, let’s break it down and understand what each letter means:
- “M” is the total amount you will receive once your investment plan matures.
- “P” stands for the amount you will invest at regular intervals
- “n” refers to the total number of fixed payments you made
- “i” is the rate of interest for each interval, and is calculated by dividing the overall rate of interest by the number of intervals
Understanding about these letters won’t do any good to you if you don’t know how to apply this formula. So let us now learn how you can calculate your returns with this formula.
Calculating Your Returns with the SIP Calculator
We will continue with the example stated in one of the previous sections.
Monthly SIP (P) = Rs 1,000
n = 36 (3 years)
i = 0.33%
To determine the value of i, to rate of rate of interest 12% is divided by 36. And thus you get the value 0.33%. This is also called at the periodic rate of interest that is applied each month throughout the plan.
Now let us put these values in the formula:
M = 1,000 × ({[1 + 0.33] ^36 – 1} / 0.33) × (1 + 0.33)
M = Rs 43,077
So, on the investment value of Rs 36,000, you will earn more than Rs 7,000 returns.
If you do the above calculations on your own, then by the time you arrive at the final answer, your children will become adults, and you will be retired.
So to save you from such an exhaustive calculation, the SIP calculator does this for you in just one click. Now let us understand the importance of this tool.
Understanding the Importance of the SIP Calculator
This calculator is a relief for investors, as you have understood in the previous section. And the following benefits make it one of the most favorite tools for investors:
1. Easy To Use and Time Saving For You
This online tool is user-friendly. All you need is to put certain data and it will do the rest calculations for you. This saves a lot of time for comparing several mutual funds.
2. Improved Decision Making and Goal Setting
With the information regarding the future returns, you can set your long-term investment goals with more precisions. And this further helps you make informed investment decisions.
3. Shows What Compounding Can Do For You
You must be aware with the power of compounding effect and what it can do to your investment, if you sustain you investment for long enough. And with the SIP Return Calculator, you can have a precise idea of it.
Although, the benefits are quite impressive. But a smart tool like this can only reach its true potential when it is used by a smarter user. So, do you know how many ways you can use it?
How Can You Use the SIP Calculator?
There are three principle ways in which you can use the calculator and improve your investment plans:
1. To compare multiple schemes
By analyzing the returns of several mutual funds of a particular category, you can easily identify the most promising one in the crowd that aligns with your individual goals and objectives.
2. To determine investment goals
With the help of SIP calculator, you can also try different fixed amounts and tenures reach at the perfect combination of these two. This way, you can easily determine your long term financial goals.
3. To effectively manage risks
Since you can predict precise future returns with the help of SIP Return Calculator. This will allow you to conduct a risk assessment on your investment plans. And this further allows you to effectively manage risks.
Summary
In short, this online calculator has made investor’s life easy and provided them with access time so that they can assess multiple schemes and find the most suitable one for them. For serious investors who are trying to find a Best SIP plan as per their needs, this tool is a gift from heaven.
You must be logged in to post a comment.