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Home Money What is SIP and how to use SIP calculator

What is SIP and how to use SIP calculator

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Thinking to invest small amounts in a scheme where you can get good returns eventually? Well, SIP is a great option for the same, but what is SIP? SIPs have attained greater popularity in recent years as investment avenues for sizable growth in the future. They equate to a systematic investment plan where you can invest a fixed amount on a periodic basis in a chosen mutual fund scheme. For instance, if you commence a monthly SIP with a certain amount in a particular mutual fund, the amount will be deducted automatically from your own bank account and will be invested on a pre-fixed date into that mutual fund in question.

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You can also use a SIP calculator for working out the approximate returns from these investments over a sustained period of time. SIPs have been regarded as a great way to inculcate financial discipline into your life while building a handsome corpus for meeting future needs.

Advantages of SIPs- Taking a closer look

With SIPs, you have the flexibility to invest small amounts on a regular basis and reap handsome rewards in the future. This is a convenient and simple way to monitor investments while making you more disciplined from a financial standpoint. SIPs do not have any entry barriers, i.e. you can start your investment journey with an amount as low as Rs. 500 every month for instance. Investing in a phased way is only possible with systematic investment plans.

Another major benefit of SIPs is rupee cost averaging which means that you do not have to time the market any longer. You can purchase more units whenever markets are on the low which lowers your overall investment costs as well. SIPs help you generate sizable future returns through the power of compounding. Compound interest growth will ensure long-term capital benefits in comparison to one-time investments. ELSS (equity-linked savings scheme) and similar SIP based mutual fund investments mostly ensure twice the returns garnered by fixed deposits and recurring deposits alike. The returns from SIPs are mostly sufficient for beating inflation, something which cannot be said for many other investment avenues.

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Key aspects worth knowing

  • SIP revolves around the philosophy of Save First, Spend Next, i.e. you can keep investing small amounts of money every week, month, quarter and so on.
  • It is different from investing a lump sum amount at one go.
  • The compound interest principle means that smaller investments over a longer time period will help you earn bigger returns in comparison to one-time investments.
  • You can increase your monthly installment amounts by 10-15% with an increase in your income over the years.
  • Equity markets have ample volatility and whenever you invest in SIPs, you will be purchasing more units during a market slump and lesser units in a bullish market. This will reduce the per-unit cost considerably.
  • With one-click withdrawal facilities, SIPs can be helpful funds for meeting emergencies in the future as well.
  • One-time investments of money are subject to instant market risks while SIPs can spread out risks greatly.
  • Choose funds with reasonable AUM (assets under management) and a decent performance history/track record over the years.
  • The tenure of the SIP is vital from the standpoint of returns, risks and taxation. Always have an investment horizon of 5-7 years at least.
  • The reputation of the mutual fund house matters immensely as well.

Using SIP return calculator

SIP return calculator

Whether you are using it for leading banks like the SBI SIP mutual fund calculator or any other SIP returns calculator, using the same is quite easy. These are online simulators that help you estimate returns on your mutual fund investments that you have made via SIPs. Invest in smaller amounts regularly, choose monthly auto-debit/payment provisions, stop worrying about market fluctuations and plan your expenditure carefully. This calculator, while giving you an idea about the expected returns, will not be able to give you the exact idea since it does not account for aspects like expense ratio (if applicable) and exit load.

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The SIP return calculator functions on the basis of the values that you are entering into the requisite fields. You have to enter in the investment amount along with choosing the duration for the SIP, frequency, i.e. monthly/quarterly and the returns that you are expecting. The calculator works on the principle of compound interest and it will show you the amount that can be accumulated when the SIP tenure concludes. The major advantages of this calculator are that you can always get an approximate estimate of the amount that the investment will create at the conclusion of the plan tenure. Additionally, you can plan your budget and finances much better with the help of the SIP calculator since you will have an estimate in hand outright. Estimating the value of the investment will enable individuals to select the right scheme for mutual fund investments as well.

Using this calculator will help you work out the minimum possible returns that you may expect from your SIP over the chosen tenure. You should ideally choose a lower expected rate of return in order to keep your expectations on the lower side. If the returns exceed the basic threshold/benchmark, then it is always a win-win situation for you! Once you know the amount that you can earn with a particular investment sum every month, you will start planning for the same accordingly. This will inculcate financial discipline into the household budget, i.e. you will first allocate the mandatory investment information for savings on a monthly basis before spending money on other household costs and essentials, etc.

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On a closing note

Building up a future corpus for meeting requirements like your retirement, higher education of children, weddings in the family, buying a home or a car and even taking a vacation, later on, is highly essential. Instead of plonking down a lump sum amount in one go, it is much better to invest small amounts periodically. This will naturally help you benefit from compounding and the earlier you start, the better! With a little planning and financial prudence on your part, you can build sizable wealth for the future with the help of systematic investment plans (SIPs).  

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