What Is A SIP Calculator And How Is It Calculated?

Aug 10, 2022

To increase your money in the most intelligent way possible, you can use a structured investment plan, or SIP, to regularly make small mutual fund investments. You can estimate the returns from your SIP investment using an online tool called a SIP calculator. Check out the potential growth of your investment using this tool.

What is a SIP Calculator?

A SIP Calculator online calculates the potential profit from a SIP investment. The calculator uses the user’s inputs to calculate results. Simple inputs are needed, such as the investment amount or the target amount, the rate of return, the tenure of the investment, and the step-up rate. The SIP calculator provides the results in a chart and graphical formats.

The calculator uses the investment amount strategy and the target amount approach. The most popular method involves the investor entering the investment amount, return, duration, and step-up amount. The target amount technique calculates the necessary current investment based on the target amount the investor hopes to reach in the specified time frame.

The SIP calculator only provides an estimate based on the inputs given. This should be noted. The SIP Calculator makes no return promises. Any mutual fund’s return is based on how well it performs. Additionally, the actual return on the mutual fund investment may differ from the SIP Calculator’s estimate. The actual return can either be more or less than the estimate given by the calculator.

How does the SIP Calculator work?

The SIP calculator uses the compound interest formula for calculating prospective returns. The calculator calculates the potential returns while considering the number of times when compounding is applicable and calculates the returns. The SIP calculator also asks users to select their desired monthly contribution amount, the number of years they wish their investment to last, and the SIP rate of return.

The online SIP calculator automatically determines the maturity amount and wealth gained through investing in mutual funds. One alternative is to enter the target amount corresponding to your financial objective and use a reverse calculator to determine the monthly investment amount for the specified period and rate of return.

A SIP calculator uses the following formula.

FV = P [(1+i)^n-1]*(1+i)/i

The FV is the amount or the future value you receive at maturity.

The ‘i’ is the compounded rate of return.

The ‘n’ is the investment duration in months

The ‘r’ is the rate of return.

Consider this example. You invest INR 2,000 each month for 10 years. The annual rate of return is 12%.

I = (12/100)/12, which is 0.01 or 1% per month

Your maturity amount will be

FV = 2000 x [(1+0.01)^120 – 1] x (1+0.01)/0.01 = INR 4,64,678

You will get an amount of INR 4,64,678 at maturity.

However, we understand that it’s a task to go through all these manual calculations. In that case, you can always use the SIP calculator here!

Remember that these amounts are hypothetical and just assume 12% returns per annum. Your actual returns may differ.

Different Types of SIP Available?

The various SIP kinds include:

  1. Regular SIP: This is the simplest SIP, allowing you to invest a amount regularly. You can select a monthly, bi-monthly, quarterly, or half-yearly investment frequency for your SIPs.
  2. Top-up SIP: You can raise your SIP amount with this SIP.
  3. Flexible SIP: You can change your investment amounts with this kind of SIP. At least one week before the SIP installment date, you must notify the fund house of the SIP amount.
  4. Perpetual SIP: When you begin your SIP investments, you must specify the SIP’s duration in the application form. It is regarded as a perpetual SIP if no tenure is set. The SIP will therefore continue unless you specifically tell it to stop.
  5. Trigger SIP: Some mutual fund platforms enable their investors to redeem a part. The entirety of their investment amount or automatically switch their investment to another plan when a pre-determined trigger point is reached. Triggers are set for upside and downside events. There are different types of triggers such as NAV, index level, capital, and time-based.
  6. SIP with Insurance: Some funds provide insurance if you invest in a SIP over a long period. The first insurance cover is around ten times the original SIP amount and grows over time.
  7. Multi SIP: You can invest in numerous fund house plans using a single instrument.

How is the SIP Return Calculated?

Absolute, annualized, CAGR and XIRR can be used to compute SIP returns. The CAGR method, however, is the best way to predict SIP returns.

The compound annual growth rate, or CAGR, measures how much an investment grows on average each year throughout the investment. Here is how to calculate CAGR:

CAGR = [{(ending value/beginning value) ^ (1/number of years or months)} – 1] x 100

Where,

The ending value is the net asset value (NAV) at the time of withdrawal

When investing, the beginning value is the net asset value (NAV).

The number of years or months is the duration of the investment.

Benefits of the SIP Calculator?

Before making an investment decision, research and analysis are required. Before investing, one should evaluate the prospective returns to determine whether or not the opportunity will be profitable. Additionally, confirming that a particular investment plan is in line with the investor’s financial and asset investing goals is crucial. This makes it possible for investors to select the asset that would help them achieve their objectives more quickly.

Benefits of using a SIP calculator or mutual fund SIP return calculator include the following:

Estimates maturity amount: The SIP calculator assists investors in estimating their possible profits after the investment period. In addition, if the investor understands how much they want to make at the end of their investment duration, it also helps predict the monthly investment amount.

Simple to use: The SIP calculator is very user-friendly. To estimate one’s returns, the necessary information must be entered. The calculator also saves investors time by avoiding the need for lengthy calculations. For example, the calculator calculates both maturity and monthly investment amounts within seconds.

Displays return estimates in graphical and tabular forms: The calculator displays return estimates in visual and tabular formats. Investors can more easily comprehend returns and make defensible decisions because of this.

Gives maturity amount based on growth scenarios: Based on three growth possibilities, the SIP calculator calculates the maturity amount for the investment. The three growth scenarios are below-average returns, average returns, or above-average returns.

Provides the step-up option: The SIP calculator allows investors to increase their yearly contributions. In other words, growing SIPs will assist in achieving financial goals more quickly. The maturity amount estimation table format also includes step-up information.

Helps in making an informed decision: Using the free SIP calculator online, investors can analyze various return scenarios and choose the investments that will produce the greatest returns.

How to invest in a SIP?

Investments in SIP mutual funds can be made in the following three steps:

Step 1: Before investing, take the first step and understand what it is intended to achieve. Establishing your financial goals helps aid your ability to choose the appropriate asset class for your investment.

Step 2: Select the appropriate mutual fund category based on the exposure to equity or debt you desire in step 1. You must submit the application form, evidence of identification and address, and KYC information before you can invest.

Step 3: Select the SIP date. You have the option of just doing it yourself or enabling auto-debit.  Other Investment Alternatives

Considering various investment opportunities to build your portfolio is always a good idea. This helps in minimizing your risk and optimizing your returns. You can invest in safer investment opportunities such as fixed deposits and government bonds. If your risk appetite is high, you can consider equities. Peer-to-peer lending is one of the rapidly growing, technology-enabled investment opportunities.

LenDenClub’s fixed maturity peer-to-peer investment plan offers returns up to 10–12% per annum on your investment. You can keep your money invested for different periods. Depending on your goals, these periods can range from one to five years.

The platform’s AI-based interface hyper-diversifies your risk. It limits the rate of default to 4%. One more attractive aspect of this plan is that you can start your investment journey with ₹10,000.  Invest Now!

There are a lot of investment opportunities currently where you can invest your money through simple procedures. But, remember that risk is inevitable in any kind of investment. Consider your risk appetite and financial goals before making a decision.

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