Systematic Investment Plans, or SIPs, are a disciplined way of investing to achieve your dreams. Deciding how much money you need to set aside to meet your financial requirements is challenging. You may have different life goals to accomplish at varying timelines within your lifespan, be it your child’s education, your retirement, your wedding, buying your dream house, or saving for your retirement. Through Mutual Funds, you can achieve them all.
There are two ways to invest in Mutual Funds: invest in lumpsum or follow a disciplined method of SIP. Often SIPs are the most preferred method. You also have a SIP calculator to assist you. It is an online tool that decides how much you should invest at intervals to provide the desired returns in the future date. Typically, the SIP calculator requires specific details: the amount, duration, and expected return rate.
If you are sure of these factors, the calculator computes how much you earn on your investment. For instance, if you contribute X amount monthly for Y number of years at a Z expected return, the calculator uses a mathematical formula to derive the investment’s future value.
How to use the calculator?
You can use them in two ways. Assess the corpus you want to create with a monthly SIP based on the tenure and profit assumptions. Moreover, you can also calculate the monthly SIP amount based on the target to achieve. Your primary assumptions, like the return rate and the tenure, are essential. These key factors decide the results. Such calculators can be easily found online and are simple to use.
Even first-time investors find it easier to implement SIPs with these calculators. Here, investors can make strategic investments to meet their financial goals in the long term.
How are the returns calculated?
While you need not calculate the returns manually, knowing how these numbers are derived accurately is best. The SIP calculator uses the following formula:
FV = P x {[(1 + r)n – 1] ÷ r} x (1 + r)
Where,
FV = Future Value
P = Principal contribution
r = Expected monthly return rate
n = Number of principal contributions
For example, if you wish to know the future value of a SIP with monthly contributions of Rs. 1,000 for about two years at an expected annual return rate of 12%, the return rate would be:
FV = 1000 x {[(1 + 0.01)24 – 1] ÷ 0.01} x (1 + 0.01)
R is 0.01 since our expected return rate is 12% per annum, translating to 1% monthly.
Conclusion
It is best to know the returns generated beforehand. You only need to follow a few easy steps. The calculator computes the accurate returns. It also helps you make the right investment decisions. Furthermore, when you know the exact investment value, it is easier to plan your future accordingly.
