What is an SIP calculator and how does it help in planning your investments?

Systematic Investment Plans or SIPs are a smart investment move to secure your future in a strategic and disciplined manner. And to make the most of SIPs, it’s best to use an SIP calculator when planning your mutual fund investments.

An SIP calculator is a useful tool to estimate the returns you will earn on your investments. Since this calculator gives you an idea of how much you need to invest regularly to achieve your target financial goal, it’s a quick and effective tool for planning your mutual fund investments.

SIP calculator: A brief overview

An SIP calculator uses the compound interest formula to calculate the future value of your investments. To use the calculator, simply open the website offering the tool and enter the following inputs:

  • Investment amount
  • Expected rate of return
  • Tenure of investment

Based on these inputs, an SIP calculator will give you an estimate of the total value of your investments at maturity (end of tenure).

Here is how an SIP calculator simplifies investment planning

An SIP calculator is not just a tool to calculate your potential returns, but it also helps you plan your investments according to your financial goals. Here is how:

  • Allows goal-based investing

Whether you are looking to save for retirement, make a down payment on a home, or want to grow your investment portfolio, an SIP calculator can show you how much you need to invest each month to reach your target. For example, let’s say you want to retire with a corpus of Rs 1 crore. Using an SIP calculator, you can see that if you invest Rs 10,000 per month for 20 years at an average annual return of 12%, you will reach your goal with approximately Rs 1 crore.

  • Gives clarity on returns

While most mutual fund schemes mention their past performance prominently on their websites and other marketing materials, the same performance may or may not be repeated in the future. However, by using an SIP calculator, investors can get some clarity on returns. The tool considers factors like investment tenure, expected return rate, etc., which gives investors a fair idea about what kind of returns they can expect from their investments.

  • Easy-to-use interface helps to compare different SIP plans quickly

An SIP calculator is easy-to-use as you just have to input basic information about your investment, and the tool does the maths. Most calculators available online are free-of-cost, which makes them easily accessible for all. The calculator also allows investors to input different variables, such as different amounts and tenure to compare the results. This makes it easy to see how different factors can impact your overall returns, and you can then invest in the SIP that offers you the best return.

  • You can track the progress and make adjustments accordingly

An SIP calculator helps you to track your progress towards your financial goals. After entering the basic investment details into the calculator, you can see how much money you will have saved at the end of each year. This way, you can make any necessary adjustments like increasing the monthly SIP investment amount, if needed, which would help you get closer to achieving your targets.

Closing thoughts

Using an SIP calculator is a simple yet effective way to plan your investments. With its easy-to-use interface and ability to offer an estimate of your investment corpus, an SIP calculator can help you stay on track with your goals and make the most of your investments.