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Investment is the way to go when looking to increase your wealth. But investment requires you to have knowledge of the market and the multiple investment avenues. However, investing in the right places can be challenging if you start or become financially independent.
Much to the relief of many newbie investors, you have a Systematic Investment Plan to begin your investment journey. It is a kind of mutual fund that invests in multiple asset classes; the only difference is that it requires monthly investments.
A Systematic Investment Plan is one of the top-notch and easiest ways of investing and growing your money in the long run. However, you can make investing in it even easier by using a SIP calculator in India. A SIP calculator is a digital tool that calculates the estimated return you will accumulate on your investment. It differs from other investment calculators based on investment fundamentals.
While other calculators offer you a generalised result, a SIP calculator provides results based on the expected returns of the SIP investment scheme generated through compound interest. In addition to that, the tool can also help you estimate the amount you should invest to reach a particular number.
This blog will tell you more about the tool and how it can help you maximise your returns and minimise risks.
How Does the SIP Calculator Work?
A SIP calculator online calculates the returns you will get on maturity through the compound interest formula. Compound interest can be defined as interest on interest. The power of compounding makes Systematic Investment Plan a promising investment avenue for those looking to invest for a longer duration and earn high returns.
A SIP calculator has an easy-to-use interface that requires you to enter just a little information regarding your investment. It includes the deposited amount, investment tenure, and the expected rate of returns. Based on this information, a SIP calculator calculates the estimated returns.
SIP Calculation Formula
The estimated returns can be calculated using the compound interest formula as follows:
FV = P [(1+i) ^n-1] * (1+i)/I
Where, FV = Maturity value
P = amount of deposit
I = Rate of Return (compounded)
N = investment duration
R = Expected rate of return
Let’s understand the working of the formula through an example:
For example, you invest Rs 4,000 per month for a tenure of 24 months.
You expect a 12% annual rate of return (r).
You have i = r/100/12 or 0.01.
FV = 4000 * [(1+0.01) ^24 – 1] * (1+0.01)/0.01
You get INR 1,08,973 at maturity.
As the calculation can be complex and time-consuming, you can use an SIP calculator to estimate your maturity amount and select the best saving schemes.
Benefits of Using the Systematic Investment Plan (SIP) Calculator
A Systematic Investment Plan calculator comes with a plethora of benefits that you must enjoy if you are planning to invest in a Systematic Investment Plan:
1. It is Easy to Use:
Digitalisation has made our lives easier. Being a product of digitalisation, a mutual fund SIP calculator is very simple to use. All you have to do is enter investment tenure, expected rate of return and amount of investment to calculate the maturity amount.
2. It Saves Time:
Investors also have the option to calculate their returns manually using the formula provided above. However, a manual calculation can be more than just exhausting, frustrating, and time-consuming. This is where a mutual fund SIP calculator offers you results in seconds. With the online tool, you can concentrate on the other essential investment and financial planning aspects.
3. Aids your Financial Planning:
Financial planning is the stepping stone to a bright financial future. You can make financially sagacious investment decisions when a financial plan is ready. For instance, as you would know your estimated maturity amount, you will be able to figure out your alternate investment avenues. At the same time, you would know how much to invest to maximise your returns.
4. It is Free to Use:
A SIP calculator in India is easy to use, saves time and stress, and is cost-free. You can use it ‘n’ a number of times without paying anything.
A Systematic Investment Plan primarily invests in market-linked instruments. Even though market-linked investments are subject to market risks, investment in SIP is comparatively safer – all thanks to Rupee Cost Averaging, wherein risk is averaged out by adjusting the purchase of units.
You can use a SIP calculator to compute your returns and choose the investment amount, tenure, and saving schemes per your financial objectives.
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