Pune, India, 17 October 2024- If you’re planning to invest through Systematic Investment Plans (SIP), wouldn’t you like to know how much wealth you could potentially build over time? Understanding your potential returns helps you make better financial decisions and align your investments with your future goals. An online SIP calculator makes this task simple.

Easy to use and offering instant estimates, this calculator can help you visualise the possible growth of your investments over time and help you develop a clear and strategic financial plan.

This article tells you more about what an SIP calculator is, how to use it, and how it can help in investment planning.

What is an SIP?

A Systematic Investment Plan (SIP) allows you to invest a fixed amount in mutual funds at regular intervals, typically monthly. It’s a disciplined and affordable way to invest, but it’s crucial to identify an investment amount that suits your budget and goals. For this, you need to know the potential return on your investment, factoring in the effect of compounding.

Compounding happens when the potential returns on an investment are reinvested and go on to earn further returns. Over time, if the investment base grows, compounding can have an exponential effect. However, estimating the impact of compounding is difficult, especially with SIPs, because each instalment has a different compounding interval.

This is where an SIP calculator online comes in handy.

How to use an SIP calculator

An SIP calculator is an online tool that helps you estimate the potential returns on your SIP investment. Simply input details like the monthly investment amount, expected rate of return, and investing duration, and the calculator will give you an estimate of how much your investment can potentially grow.

Why you should use a calculator to plan your SIP investment

Using an SIP calculator online offers several advantages:

1. Time-saving: Manually calculating returns can be cumbersome. A calculator does it in seconds.
2. Accuracy: It eliminates human error, ensuring you get precise figures (based on your inputs).
3. Better financial planning: Knowing your potential returns helps you decide a suitable investment amount and horizon.
4. Flexibility: You can experiment with different investment amounts and tenures to arrive at a combination that suits your goals.

How to use an SIP calculator online

While each calculator may have different features, here are some of the common steps

1. Enter the monthly investment: This is the amount you plan to invest regularly.
2. Expected return rate: You need to enter the rate of return you expect from your mutual fund investment. You can use the historical returns* of the scheme or mutual fund category for reference. However, you should consider returns over different cycles for a more accurate picture.

*Past performance may or may not be sustained in the future.

3. Investment tenure: This is the duration for which you will continue your SIP investment. This could range from a few years to several decades, depending on your goals.

After inputting the above details, the calculator will show you the estimated value of your SIP at the end of your chosen tenure.

However, you must keep in mind that the calculator uses a fixed rate of return for its projections. In reality, returns or not guaranteed and can fluctuate depending on market conditions.

SIP calculator formula

An SIP calculator will typically use the formula for compound interest for its estimates. However, it may factor in different compounding periods for each instalment.

The formula is:

A = P(1 + r/n)^nt

Where:

• A is the future value of the investment/loan, including interest.
• P is the principal investment amount (the initial amount of money).
• r is the annual interest rate.
• n is the number of times that interest is compounded in a period.
• t is the time the money is invested or borrowed for, in years.

How does an SIP investment benefit you?

Investing through SIPs has several advantages. These include:

1. Rupee cost averaging: By investing at regular intervals, you buy more units when prices are low and fewer units when prices are high. This can reduce the impact of market volatility and reduce the per-unit cost over time.
2. Discipline and convenience: SIPs encourage regular saving and investing. You can automate your investments, so the amount is debited automatically from your account each month, ensuring you stay on schedule.
3. Small amounts, significant return potential: With an SIP investment, you can start with as little as Rs. 500 a month and still potentially build a sizeable corpus over time.

Whether you’re just starting out or you’ve been investing for years, using an SIP calculator online is a suitable way to ensure you’re on track to meet your financial goals.

By understanding the features of an SIP calculator, you can make smarter investment decisions without needing to be a financial expert. So, the next time you plan your SIP, try using an online calculator. It’s a small step that could make a big difference to your financial planning.

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

Name: Bajaj Finserv Asset Management Limited

Organization: Bajaj Finserv Asset Management Limited

Website: www.bajajamc.com

Email: gaurav.parmar@bajajamc.com

Address: 8th floor, E-Core, Solitaire Business Hub (formerly Marvel Edge), Viman Nagar, Pune – 411014