Learn how to calculate your SIP investments with ease and maximise your returns. Read on to know more!
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Investing in mutual funds can be a great way to grow your wealth. However, with so many mutual funds available, it can be challenging to determine which are the best ones for your investment goals. That's where a SIP Calculator comes in handy. SIP Calculator helps you understand how much you can expect to earn from your investment over time. In this comprehensive guide, we will explain what SIP Calculator is, how it works, and how to use it to make informed investment decisions.
Calculate Future Value of your SIP investment
Systematic Investment Plans, or SIPs for short, are a type of investment strategy that allows you to invest a fixed amount of money at regular intervals, typically monthly. This approach helps you build a disciplined investment habit and spread your investment risk over time.
SIPs are a popular investment option among people who want to invest in the stock market but are hesitant about investing a lump sum amount all at once. With SIPs, you can start investing with as little as ₹500 per month and gradually increase your investment over time.
A SIP calculator is a handy tool that helps you calculate the potential returns on your investment in mutual funds. With the SIP calculator, you can experiment with different investment amounts, investment periods, and expected rates of return to find the investment plan that works best for you.
SIPs work by enabling you to invest a fixed amount of money at regular intervals, say every month, for a fixed period of time. In India, you can choose to invest in specific mutual funds with the help of third-party fund managers. They will study the market and do the actual investments to get the maximum returns.
As the market rate fluctuates over time, your fund managers will help you invest different amounts in mutual fund units each month. When the market is high, they will buy fewer units, and when the market is low, they will buy more units. This approach is called Rupee-cost Averaging and helps you reduce the risk of investing a large amount of money at the wrong time.
Over time, as you continue to invest in SIPs, your investment portfolio and your potential for returns grow. This can be a great way to build wealth over the long term.
There are several different types of SIP’s available to Indian investors. We’ve put together the Types of SIP’s with their main features, suitability, and their benefits & risks.
Type of SIP
Risk and Benefit
Invests primarily in equity or stocks. Even though there is potential for higher returns, it is also subject to market volatility.
Investors with a higher risk appetite, long-term horizon (typically 5+ years), and someone with wealth creation goals.
Potential for capital appreciation and higher returns over the long term, which is subject to market volatility.
Invests in fixed income instruments such as government securities, and corporate bonds. Providing stable income with lower volatility.
Conservative investors seeking regular income, capital preservation, lower risk, and for someone with a shorter investment horizon.
Acting as a hedge against market volatility but provides stable returns. Offers relatively lower returns compared to equity SIPs.
Invests in a combination of both the equity and debt instruments.
Investors seeking moderate risk exposure and regular income. For someone who is looking for a medium to long-term horizon.
Offers diversification benefits, potential for capital appreciation, and income generation, with associated equity component risks subject to fluctuations in the market.
ELSS (Equity-Linked Saving Scheme)
Tax-saving SIPs investing in equities. Offers tax benefits under Section 80C of the Income Tax Act.
For Investors aiming to save taxes while seeking long-term wealth creation with a medium to long-term horizon.
Provides tax benefits but comes with a potential for higher returns, and compounding advantages. There are market risks and short-term fluctuations.
Focuses on specific sectors (e.g., banking, technology, healthcare).
Investors with a high risk appetite, specific sectoral insights, and a long-term horizon.
Opportunity to capitalize on the growth of specific sectors, but exposed to concentrated risks associated with the chosen sector.
Replicates a specific market index (e.g., Nifty 50, Sensex). Delivers index with returns just like they track.
Investors seeking market returns with broad market exposure. Costs lower with minimal to no requirement for active funds.
Provides diversification, lower expense ratios, and benchmark-like returns. This is subject to market risks and cannot outperform the tracked index.
Invests in gold ETFs or gold mutual funds, offering gold accumulation.
Investors who want to make their investments safe and also safeguard their investments against rising prices.
Provides a convenient, cost-effective way to invest in gold, offers liquidity and eliminates the need for physical storage, but is impacted by short-term gold price volatility.
Invests in foreign securities, participating in global markets.
Investors seeking international diversification. Provides long-term growth opportunities.
Provides access to international markets, sectors, and currencies, with potential for higher returns but exposure to currency risk and global market volatility.
By understanding the different types of SIPs, as an investor it is essential for making informed investment decisions aligned with your financial goals, risk tolerance, and investment horizons.
There are several benefits to choosing SIPs as your investment option. Let's take a closer look at some of them.
One of the primary benefits of SIPs is that they promote disciplined investing. Since you invest a fixed amount regularly, you develop a habit of saving and investing. This habit can help you achieve your financial goals in the long run.
Another significant advantage of SIPs is the power of compounding. When you regularly invest in SIPs, your money earns interest, which is reinvested. Over time, this interest earns more interest over time, and your money grows exponentially. This compounding effect can help you accumulate wealth in the long run.
SIPs also offer the benefit of cost averaging. When you invest regularly, you buy units of the fund at different prices. This way, you don't have to worry about the ups and downs of the market. Over time, the average cost of the units you buy becomes lower, which can result in better returns.
SIPs offer flexibility in terms of investment amount and frequency. You can start with a small amount and increase it as your income grows. You can also change the frequency of your investments or stop them altogether without penalty.
SIPs offer the benefit of diversification. When you invest in SIPs, your money is invested in various stocks and bonds. This diversification helps in mitigating the risk of investing in a single stock or bond.
Using SIP Calculator is easy. Follow these steps to calculate your potential earnings.
Visit the SIP Calculator website.
Enter the investment amount.
Enter the duration of investment in years.
Enter the expected rate of return.
Select the frequency of investment (monthly, quarterly, or annually).
Click on the calculate button.
The SIP Calculator will display the potential earnings from your investment.
Meet Rahul, a 30-year-old IT professional who wants to start investing in mutual funds through the SIP route. Rahul has an investment goal of accumulating Rs. 20 lakhs in 10 years for his child's education. He plans to invest Rs. 5,000 monthly in a mutual fund with an expected rate of return of approximately 12% per annum.
He can use a SIP calculator to estimate the returns from his SIP investments. Here's how he can do it.
Visit a financial or mutual fund company’s website with a SIP calculator.
Enter the investment amount as Rs. 5,000, the expected rate of return as 12% per annum, and the investment tenure as 10 years.
The SIP calculator will then provide Rahul with an estimate of the corpus he can accumulate over the investment tenure. In this case, let’s consider the estimated corpus is Rs. 11.38 lakhs.
Rahul can then use the estimated corpus to plan his investment strategy. He can calculate how much he needs to increase his investment amount or how much longer he needs to invest to reach his goal of Rs. 20 lakhs.
For instance, if Rahul wants to accumulate Rs. 20 lakhs in 10 years and the estimated corpus is Rs. 11.38 lakhs, he must invest a total amount of Rs. 10,618 every month to achieve his goal. A SIP calculator can help Rahul make informed investment decisions and plan his investment strategy based on realistic estimates. It can also help him track his progress and make necessary changes to his investments.
If you are someone who is looking to start an SIP, here’s a little bit about what you need to know for effective saving.
First and foremost is defining your financial goals, it all starts with determining the purpose of your investment. Whether it is to accumulate wealth, retirement planning, educational expenses or any other personal goal of yours is your choice. Getting your clarity will help you select the right mutual funds for your SIP. Understanding the risks involved is absolutely elemental in assigning the right asset allocation for your SIP.
Choose the right platform that provides you with ease of access in starting your SIP.
When investing in Systematic Investment Plans (SIP’s) or lump-sum investments, here are some important factors to consider their own merits and demerits. Here’s a comparative analysis between these two for clear understanding on which you want to chose:
Lump sum investments:
Investors typically select lump sum investments for taking advantage of a sudden market opportunity. It refers to investing a large amount of money in a single transaction. These investors are often individuals who have funds that are readily available for investments.
Systematic Investment Plans (SIP’s):
Unlike a lot of the other options available in the finance market an SIP is something that acts as a more disciplined approach to investing. It involves regularly investing a fixed amount of money at regular intervals, such as monthly or quarterly. You as an investor get to choose your monetary amount for investment. Once the amount is clearly decided, the amount will be automatically deducted from your bank account and invested in the selected mutual fund scheme.
SIP’s offer you with a steady stream of potential returns, no doubt about it, but you should also know about their tax implications as well. The tax implication depends upon the type of mutual fund in which you chose to invest in.
SIP’s qualify for deduction up to Rs. 1.5 Lakhs per financial year. The most important thing for you to do after you start investing is to maintain proper documentation of your investments, dividend statements, capital gains statements. Maintaining these records will help in an accurate reporting of income and gains during the income tax filing process. These income tax laws are subject to change and it is advisable that you consult a tax advisor or financial planner for personalized guidance based on your portfolio and which tax bracket that you fall under. By understanding these tax implications of SIP investments helps towards effective tax planning and maximizing your returns steadying your financial stability.
Even though SIP’s offer many benefits, it is essential to be aware of the potential misconceptions that may intercede with your investment journey. We’ve listed out five common mistakes to avoid as an investor while investing in an SIP India.
Neglecting Financial Goal Planning: When you don’t have a clear goal set, it is quite challenging to determine the investment amount, tenure and budget allocation for your SIP.
Investing Without Research: Without conducting proper research on where to invest, how much to invest and investment goal can result in unsuitable investment.
Gauging & Timing the Market: Mainly SIP’s are designed to reduce and safeguard your savings from the volatile market crash. It is important to gauge the short term fluctuations and it is quite tricky. When it comes to starting an SIP it is better to stay the course and invest long-term to derive better returns.
Investing Without Monitoring: Starting a SIP without properly monitoring is equal to a dead investment. It is mandatory that you frequently monitor your SIP’s and optimize it regularly so that you can properly restructure & maximize your finances with care.
Investing Without Professional Guidance: Seeking professional guidance while setting your financial goals is important to grow your portfolio. They provide you with valuable insights that help align and achieve your financial goals based on your set goals.
Yes, a SIP calculator can be used for all mutual funds, regardless of the fund house or the type of mutual fund.
The accuracy of a SIP calculator depends on the inputs the user provides. It is important to give realistic inputs to estimate the returns accurately.
Yes, SIP calculators are available online on various financial websites, mutual fund company websites, and mobile applications.
While a SIP calculator can estimate the returns, it should not be the only factor considered when choosing a mutual fund. Other factors such as the fund's investment objective, track record, and risk profile should also be taken into account.
SIP calculators are based on assumptions and estimates, and the actual returns may differ from the estimated returns. Additionally, past performance does not guarantee future returns, so the estimates provided by a SIP calculator should be viewed as indicative rather than conclusive.
Yes, a SIP calculator can help investors plan their SIP investments by giving them an estimate of the corpus that can be accumulated over time. This can help investors set realistic investment goals and choose the right strategy.
The factors that affect the returns calculated by a SIP calculator include the investment amount, the SIP frequency, the expected rate of return, and the investment tenure. Other factors such as market conditions, economic factors, and inflation, may also affect the returns.
Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.