What Makes a SIP Calculator Essential for Tax Saver Funds?

Are you interested in investing in Tax Saver Funds? Then the SIP Calculator can help you predict the most precise future returns from these funds.

This way, you can enjoy the fun of saving your returns from tax deductions while making sure that you get the most suitable scheme to invest in.

But did you know that this calculator can be used in different ways including this one. This article explains various applications of this online calculator that are helping investors like you to improve their financial decision-making.

Along with this, it also discusses the calculation mechanism and optimization tips regarding the fund.

This is going to be a highly informative post for you, so do not miss any part, especially the limitations of the SIP Return Calculator. Now let us start our discussion with the functioning of the calculator.

How Does the SIP Calculator Work?

To get the value of final returns on your SIP, you need to give three key inputs to the calculator. And they are as follows:

· The monthly investment of your choice

· The entire duration of your plan (e.g., 1 year, 2 years, etc.)

· The expected rate of annual returns from the scheme

Once you provide these inputs to the calculator, it will give you the future investment value of your plan.

But did you ever think, exactly, how the calculator does this? Well, there is a formula behind it.

How Can You Calculate Returns from Tax Saver Funds?

The functioning of the SIP Calculator is completely based on one fundamental formula that is mentioned below: 

FV = P × {([1+r] ^n-1)/r} × (1+r)

The above table tells what each letter means in this formula. But this does not make it easy to understand for all investors. A workable example, on the other hand, could do well.

Calculations with an Example 

Suppose you want to start a SIP of Rs 3,000 in an ELSS for the next 5 years and it gives around 10% of annual expected returns.

So can you tell what will the values of those letters in the formula, let us find out:

P = Rs 3,000

r = 0.016

Now let us put those values in the formula and find the value of the future investment for you:

FV = 3,000 × {([1+0.0001] ^n-1)/0.01} × (1+0.0001)

FV = 3,000 × {([1.0001] ^60-1)/0.0001} × (1+0.0001)

FV = Rs 2,32,311

This means, by the end of your investment plan, you will earn more than Rs 50,000 returns on your SIP. And do not forget that you will also be saving up to Rs 1,50,000 from tax-saving mutual funds. So, with such great returns, you will also have a relatively higher investment value.

Now that you have learnt about the calculations, you can use this calculator in several ways. Let us know them.

What are the applications of the SIP Calculator?

Although this online tool calculates your future returns, you can use this function in numerous ways. The following applications of the SIP Return Calculator will improve your investment planning:

1. Compare Different Mutual Funds

Based on the future investment values and their expected returns, you can compare multiple mutual funds and find the best SIP for you. You can even find the most suitable duration to attain your financial goals.

2. Effective Risk Management 

While hunting for the most suitable scheme, you can also assess their risk based on their future returns. This way, you will be able to minimize the risks associated with those schemes and make highly informed decisions.

3. High Flexibility 

You can try different sets of inputs including tenure and fixed amount and see how they affect your future returns. This way, you can find a realistic investment plan that will suit your financial conditions and future goals.

These applications are not known to several investors, however if you want to optimize the results from the SIP Calculator, you should not leave any opportunity behind. So let us learn about some other ways through which you can get better results.

Effective Ways to Optimize the Results from the SIP Calculator 

There are some basic rules that can improve the results from this online calculator to the next level and they are as follows:

1. If you start an early investment, then the power of compounding can give you great returns.

2. You can also increase the fixed amount on a regular basis so that you can accelerate your wealth creation.

3. You must not forget to deduct the tax implications on the future investment value.

4. Always consider inflation while calculating the future returns on your SIP investment.

An online calculator that is available for free on the internet with various applications can be a bane for users. The SIP Returns Calculator can make investment planning very easy for you if you know its true potential, and the above discussion tells you how good it is.

However, “Even diamonds have flaws,” so how come this calculator can be a perfect tool? So let us explore some limitations of this tool and find out if you can eliminate them or not.

What are the Limitations of the SIP Calculator?

One key consideration about the SIP Calculator is that it works on only factual data that does not include any factor that can affect the growth of a mutual fund.

For example, this calculator does not include the possibility of significant global events that can cause a potential drop in the market, thus decreasing the growth of the fund.

The following are some important limitations of the calculator that you should not ignore at all costs:

· It does not consider inflation while calculating your future investment values which is an important factor in assessing future returns.

· The calculator also does not deduct taxes before giving you the final values of your investment and this can give higher values.  

· It does not address the risk of market volatility in the calculations which plays a crucial role in affecting mutual funds.

Since you are investing in tax-saving mutual funds, you don’t need to worry about the tax implications. Because you will already be saving a significant amount on your investment.

But for those who are investing in other mutual funds, these limitations can be eliminated by putting some extra effort of deducting taxes and including the factor of inflation in the calculations. Now let us conclude this discussion.

Conclusion

In short, if you are looking for a way to improve your investment planning in mutual funds, then this online calculator can be a one-stop solution for you. It can predict the future returns on your investment which you can use to compare and hunt for the best SIP.

And the tax-saving funds will further take your returns to the next level by protecting your capital gains from tax implications. It is a win-win situation for you.