What is a SIP Calculator?
The full form of SIP is Systematic investment plan, and a calculator designed to help an individual make the right financial decision based on various aspects of SIP.
SIP or Systematic Investment Plan calculator is a simple tool available in the online financial software which helps people find out the probable yield that SIPs will generate into mutual funds. SIPs refer to investing a fixed sum of money at specific intervals usually in mutual funds.
SIPs refer to investing a fixed sum of money on a regular basis in mutual funds. This calculator helps to calculate SIP returns online, giving the estimated growth in the investment amount within a given time frame.
Why Use a SIP Calculator?
A SIP calculator is beneficial because:
- Estimates Returns: It helps you forecast on the possible value of the funds that you will have to invest in the future at a given rate of return.
- Investment Planning: Self investment is an important factor that assists an individual in the development for a long-term investment plan to enable achievement of financial objectives.
- Time-Saving: One of its advantages is ability to simplify computations and give faster, accurate results.
- Financial Discipline: It helps a person to invest frequently and consistently because it reveals the amount that one can expect to gain.
How Does a SIP Calculator Work?
A SIP calculator uses a straightforward formula to estimate your investment's future value:
Future Value (FV)=
𝑃×((1+𝑟)𝑛−1𝑟)×(1+𝑟)
Future Value (FV)=P×(r(1+r)n−1)×(1+r)
Where:
- P = Monthly investment amount
- r = Expected monthly rate of return (annual rate divided by 12)
- n = Number of months
For example, if you invest ₹1,000 per month for 2 years at an annual return rate of 12%, the calculation would be:
Future Value=
1000×((1+0.01)24−10.01)×(1+0.01)
Future Value=
1000×(0.01(1+0.01)24−1)×(1+0.01)
This would result in approximately ₹27,122 at the end of 2 years.
How to Use a SIP Calculator
Using a SIP calculator is simple:
- Enter Monthly Investment Amount: Input the amount you plan to invest each month.
- Enter Investment Duration: Specify the number of years you wish to invest.
- Enter Expected Rate of Return: Provide the annual rate of return you anticipate from your investment.
Once these details are entered, the calculator will instantly display the estimated future value of your investment.
Advantages of Using a SIP Calculator
- Instant Calculations: Quickly estimate the future value of your investments.
- User-Friendly Interface: Simple to use, even for beginners.
- Informed Investment Decisions: Helps you plan and achieve your financial goals effectively.
- Saves Time: Automates complex calculations, saving you time and effort.
- Set-up SIP Calculator : The step up SIP calculator is a tool that allows you to estimate the growth of your SIP investment. If you wish to raise your investment every year, you may use this calculator to calculate returns.
Understanding SIPs and Mutual Funds
- What is a SIP? A SIP is a way to invest a fixed amount regularly in mutual funds. It helps in averaging out the cost of investment and benefits from the power of compounding.
- What is a Mutual Fund? A mutual fund pools money from multiple investors to invest in stocks, bonds, or other securities. It is managed by professional fund managers.