Systematic Investment Plans or SIPs can make investing in mutual funds easy, convenient and affordable. SIPs allow investors to set aside a fixed amount at regular intervals – weekly, monthly, quarterly etc – into a mutual fund scheme of their choice. Over time, even small but consistent investments have the potential to build wealth. 

But how do you know how much you need to invest to reach your financial goals? This is where an SIP calculator comes in handy.

What is an SIP calculator?

An SIP calculator is an online tool that helps you estimate the potential future value of your SIP investments. You need to enter the amount you plan to invest, the duration of the investment, and the expected rate of return. Based on these, the tool determines the value of your final potential corpus.

You can also use the tool to ascertain how much you should invest (based on the desired size of your final corpus) or what type of scheme you should choose (based on the rate of return you seek).

Do note, however, that these estimates assume that you earn a fixed and consistent rate of return. In reality, the returns may fluctuate and are subject to volatility and other market risks.

Why use an SIP calculator?

An SIP calculator offers the following benefits:

• Financial planning: It helps you determine how much you need to invest and what type of scheme to choose to potentially reach your goal amount.
• Realistic goal setting: The tool helps you set realistic expectations from your investment by showing you how much you can potentially earn given your instalment amount and the rate of return expected from your chosen scheme.  
• Instant results: It saves you the time you would take to make complex calculations involved in estimating returns.

Steps to use an SIP calculator

• Enter the investment amount: Start by entering the amount you plan to invest every month.
• Select the investment period: Choose the duration for which you want to invest. This can range from a few months to several years.
• Enter the expected rate of return: Input the annual rate of return you expect from your investments. You can determine this figure based on the historical date of the scheme/scheme category you are planning to invest in. Do note, however, that past performance may or may not be sustained in the future.

Based on these inputs, the SIP calculator will display the potential future value of your investments.

For example, let’s assume you choose a monthly investment amount of 5,000, an investment period of 10 years and an expected 12% per annum rate of return. The SIP calculator will show you that your final corpus can potentially grow to ₹11,61,695 (on an investment of Rs 6,00,000) based on these inputs.

The tool also shows you the impact of the power of compounding on your investments. Compounding happens when the potential returns on an investment are reinvested to go on and earn further potential returns. Over time, this can have an exponential effect and can potentially grow your corpus at an accelerated rate.

Using your calculator for SIP strategy

An SIP calculator can help you adjust your investment strategy based on your goals. If the estimated future value of your investment is lower than your expectations, you can try the following:

Increase monthly investment: Raising the SIP amount can significantly boost your potential corpus.

Extend the investment period: Investing for a longer duration enhances the potential effect of compounding.

Explore funds with higher return potential: Consider funds that typically yield higher return potential (such as equity funds). Do remember, however, that higher returns come with higher risks and such funds may not be suitable for conservative investors.

Advantages of SIP investments

SIPs offer several advantages that make them an attractive choice for financial planning:

• Disciplined savings: SIPs encourage regular saving habits, which is crucial for building wealth.
• Rupee cost averaging: By investing a fixed amount regularly, you buy more units when prices are low and fewer units when prices are high, which typically reduces the per-unit cost of the investment.
• Flexibility: You can start with a small amount and gradually increase your SIP as your income grows.

Avoid common mistakes while using SIP calculator

While using an SIP calculator is simple, avoiding these common mistakes can ensure better financial planning:

• Unrealistic expectations: The calculator’s estimates assume that your investments will grow consistently at a fixed rate. In reality, the market can be unpredictable, and returns are not guaranteed.
• Ignoring inflation: Consider the impact of inflation on your future goals and adjust your investment projections accordingly.
• Inconsistent investments: Missing SIP payments can disrupt your financial planning. Stay consistent.

By keeping these factors in mind, investors can strategically and effectively use SIP calculators to set realistic goals and create a well-defined plan to potentially achieve them.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.

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