A SIP calculator is a tool that fund houses provide to help individuals find the estimated returns on their investment. It simulates a result based on the data submitted by an individual. A SIP calculator can help an investor map a perspicacious investment strategy. In simple words, individuals can predict the yields from a mutual fund investment with the assistance of a SIP calculator.
This article will discuss how a SIP calculator works and how it can help investors.
Before we explore the mechanisms of SIP calculators, we must know what SIPs are. Here is a brief explanation-
Systematic Investment Plan (SIP) is an investment strategy that mutual funds’ companies provide to its investors. It is a financial vehicle which precisely charts out an investor’s portfolio to meet its objective. A SIP is a great tool for increasing the profits exponentially while mitigating the risks.
Based on investment objectives, SIPs allow individuals to invest in different mutual funds. With SIPs, investors can periodically invest in mutual funds (weekly, monthly, etc.). A SIP provides a disciplined investment method to individuals and gives them the opportunity to save and grow their money.
If you are interested in SIPs, then your first step should be to estimate the future value of your investment. SIP calculators will help you find how much you can earn on a mutual fund based on your strategy.
Many mutual fund companies provide SIP calculators to help individuals get an idea about the returns on their investment. A SIP calculator determines the profits based on the inputs such as the amount of investment, the tenure, and the expected rate of interest.
Individuals need to know that SIP calculators determine returns without factoring in the market risks. Hence, investors should consider this amount as an estimate. Also, in order to get yields based on the tool’s calculation, an individual must invest in a mutual fund that delivers the returns at the same rate of interest.
For example, if you have entered an expected interest rate of 8% in a calculator, then you need to invest in a mutual fund that delivers returns at 8%.
An investment plan is dominated by important factors such as tenure, SIP amount, etc. Here is how SIP calculators can help you accurately plan these factors-
- The Investment Amount
With a SIP calculator, you can assume the returns. It will help you plan your finances and develop a disciplined viewpoint towards investment. Based on this estimate, you can accurately select a SIP amount that fits in your budget. Once you have decided on the SIP amount, you can move to other crucial factors.
- The Mutual Fund Type
Interest rate is a vital aspect in determining the result. SIP calculators allow you to enter an expected rate of interest. While selecting a specific mutual fund scheme in a SIP calculator isn’t possible, it can guide you to invest in a fund that offers the same interest rate as per your calculation.
- The Tenure
While the SIP amount and the mutual fund scheme play important roles, the investment tenure’s part is undeniably crucial. SIP calculators will help you find out how many years you need to invest in order to create wealth as per your expectations.
In conclusion, a SIP calculator can help you achieve your investment objective by giving you an idea about the maturity amount.