A systematic approach to identifying your financial goals is essential for a successful investment. Planning your goals meticulously and with consideration helps streamline your investment to generate intended returns while making you financially secure.
While you have decided to invest in mutual funds through SIP, it’s also important to be aware of the exact investments, time, and returns you need to meet your goals. For instance, your financial goal is to build a home in ten years. But, with other expenses at hand and without an approximation, how would you plan your goals and reach them? It’s through the online SIP calculator. With its use, you can plan out the money and time you need to achieve any specific goal.
SIP calculators help you plan your goals & investments by offering you estimated gains and investment amount needed for mutual funds categories you want to invest in. SIP calculators are a very useful, handy, and reliable financial tool to make the investment journey smooth.
Here’s a glance at some of the benefits of a SIP calculator that helps investors in
- Determining the investment amount
- Estimating the returns and adjusting the amounts accordingly
- Strategic and effective planning of investments.
- Simplifying the complex calculations & thus time
- Fetching instant results
How does a SIP calculator work?
A typical SIP calculator works through a simple formula,
MA = PI x ((1 + I)n – 1) x (1+ I)/I
Wherein each element in the formula denotes a different meaning.
MA means the amount you will receive upon maturity
PI implies the amount invested periodically
I represent the interest
n represents the number of SIP installments
Let’s understand the SIP calculations with an example:
Assume you want to invest Rs 1000 per month for two years in a mutual funds scheme with an interest rate of 10%
The monthly rate of interest would be 10%/24 = 0.0041
And the amount upon maturity calculated as
MA = 1000 x ((1+ 0.0041)^24 – 1) x (1+0.0041)/0.0041
MA = 1000 x (1.0041^24 – 1) x 1.0041/0.0041
MA = 1000 x (1.1049 – 1) x 244.902
MA = 1000 x 0.1049 x 244.90
MA = 25,690 approx
The MA amount after holding the investments for two years is Rs 25,690.
The actual returns from mutual fund investment are calculated as
Actual returns = MA – Total invested amount
Actual returns = 25,690 – 24,000
Actual returns = 1690
You see, the process of manual calculations is so lengthy and time-consuming. Besides, there are high chances of making errors while calculating.
With an online SIP calculator, you can ease your process in just 3 steps mentioned below while getting a lot of other investment planning benefits that we have seen above.
- Monthly investment amount
- Investment period in years
- Expected rate of return
How to use an online SIP calculator?
Here are the steps of using the SIP calculator with Glide invest for setting up financial goals.
- Visit Glide Invest and under section tools, click on SIP calculator.
- Once open, select the amount you would like to put for each SIP installment. You can choose as little as Rs 500 to a maximum of Rs 20,00,00, depending on how much you wish to invest.
- Now select the investment period you wish to stay invested in mutual funds. You can choose the duration within the range of 1-30 years that you think will offer you reasonable returns.
- Lastly, select the rate of return. If you have chosen a particular fund scheme, enter the past rate of interest of the scheme as a reference.
Once you select/enter all three values, the SIP calculator will provide you with the following information in numerical as well as a graphical representation.
- The estimated value (maturity amount) at the end of the tenure
- The investment amount you would need for your investment horizon
- Actual return (estimated returns) from your investment.
Suppose you want to invest Rs 2000 per month as SIP for eight years with an expected return rate of 12%. So when you enter these values on a SIP calculator, you will be offered a result indicating the corpus you would make at the end of the tenure & the actual returns at a particular investment amount. In this case, you will generate an estimated maturity amount of Rs 3.14 lakhs.
Based on these values, you can compare various mutual fund schemes by changing the values and see which one works best for you and is in line with your goals with a particular investment amount and horizon. Also, you try various combinations by increasing or decreasing your investment duration or amount to identify the best possibilities for you to achieve your goals.
However, remember the actual returns you will receive may vary from the ones you will get from the SIP calculator owing to several factors. That is because the SIP calculators don’t count exit load or the expense ratio of managing your funds in the calculations. Also, as an investor, you must consider the inflation factor while investing in mutual funds, as the prices change with time. You may have to adjust your investment amount with inflation so you can be on track to achieving your predefined goals. You can consult your financial advisor or research for yourself about the inflation rate at which the price will likely increase (ideally, it’s 6-8%).
SIP calculators are a great and effective way to get through complex calculations. They are easy to use and can be accessed anytime and anywhere. With a few clicks and taps, you are ready with the numbers within a matter of seconds. Having such information handy can help you plan your future goals with ease. Your future goals can be anything from building a home and buying a car to investing in your child’s education. Using a SIP calculator, investors can forecast multiple investment scenarios, making it easier for them to make informed decisions for themselves.