The power of planning: How to use an SIP calculator to plan your investments?

Achieving financial goals requires careful planning, and a SIP (Systematic Investment Plan) calculator is a valuable tool to simplify this process.

It allows you to estimate the growth of your investments by inputting essential details such as your financial targets, investment duration, and expected rate of return. This helps you visualize the power of compounding, where your returns generate additional income over time, significantly boosting your corpus.

A SIP calculator also highlights potential challenges, such as insufficient contributions or unrealistic goals, enabling you to make informed adjustments to your strategy. For instance, you can experiment with different SIP amounts, investment horizons, or expected returns to see how they impact your final corpus.

This tool helps you gain clarity and confidence in your financial journey. It ensures your investments remain aligned with your aspirations, helping you stay consistent and disciplined toward achieving long-term financial security.

This blog will guide you in using a SIP calculator to plan your investments and make informed decisions that align with your financial aspirations.

• Table of contents

1. What is an SIP calculator and how does it work?
2. What are the advantages of an SIP calculator?
3. How to use Bajaj Mutual Fund calculator?
4. Things to note while using SIP calculator
5. Is an SIP calculator accurate?
6. 4 benefits of using an SIP calculator
7. Factors affecting the future value of SIPs

What is an SIP calculator and how does it work?

An SIP calculator is a tool that helps in estimating the returns on your SIP investment. To calculate the potential future value of your investment, the SIP calculator takes into account the estimated rate of return, your investment amount and the duration of your investment.
The online SIP calculator uses the following formula to calculate the future value of your investment

FV = P x {[(1 + r) n – 1] ÷ r} x (1 + r)
Here,
FV - Future value of investment
P - Principal amount invested each month
r- Expected rate of return
n- Total number of payments

What are the advantages of an SIP calculator?

Helps in making informed decisions: Investment planning plays a crucial role in helping you achieve your financial goals. By using a mutual fund SIP calculator, you can plan your finances wisely and determine the amount to be invested to achieve your financial objectives with minimum hassle.
Instant output: Calculating the returns on your investment manually can be a cumbersome task. With the help of an SIP calculator, you can easily get the estimated future value of your investment within seconds.
Easy to use: The online SIP Calculator is very easy to use. All you have to do is enter a few parameters such as your investment amount, expected rate of return and investment horizon to get an estimate of the returns.

How to use Bajaj Mutual Fund calculator?

Here’s a step-by-step guide on how to use an SIP calculator:

Step 1 - Enter the amount that you wish to invest every month.
Step 2 - Choose the duration of your investment and expected returns.
Step 3 - Once you enter these inputs, the SIP calculator will show you what your invested amount is, what its future value will be, and what your returns will be for that chosen period.
Step 4 – To arrive at the SIP amount that suits your investment goals, you can simply change the amount you plan to invest every month or the tenure for which you plan to invest.
By using an SIP calculator efficiently, you can get an estimate of how much you’ll need to invest monthly to achieve a specific financial goal in the desired period.

Things to note while using SIP calculator

• SIP calculators provide estimated future values based on assumed returns. Actual returns can vary.
• Use conservative, moderate, and aggressive return assumptions to see outcomes under different scenarios.
• Reduce estimated returns by the expected inflation rate for a more realistic picture.
• Compounding has more time to work its magic with longer investment tenures of 10-20 years.
• Calculators assume you will systematically invest a fixed amount on time every month or year.
• Calculators do not account for taxes on gains that can impact net returns.
• Expense ratios and loads charged by funds can reduce net returns.
• Use calculators as a starting point. Do your own additional research before investing in SIPs.

Is an SIP calculator accurate?

If you look at the mathematical formula used by an SIP calculator, the answer to the question: ‘Are SIP calculators accurate?’ is – ‘Yes!’ You get a mathematically correct result from the formula. However, if you are talking about the future value of your investment, the answer is – 'It depends.’

The accuracy of the results from an SIP calculator depends on these factors:

Rate of return: When you use the SIP calculator, you take a guess at the expected rate of return from a mutual fund. The actual rate of return may vary affecting the accuracy of the result.

Market conditions: The biggest factor that can affect your returns from mutual funds is market volatility. This is something that you can never anticipate or predict when using an SIP calculator. Changes in market conditions can significantly affect the returns from mutual fund investments.

Fund management: The fund managers and their investment strategies play an important role in determining the performance of a mutual fund. An online tool like an SIP calculator cannot possibly predict how the fund manager can affect your mutual fund returns.

4 benefits of using an SIP calculator

Here are the 4 advantages of using an SIP calculator:

Ease of use: You can easily use an online SIP calculator, enter the various values to get an idea of the future worth of the invested amount. Since it is a free tool available on the internet, there is no restriction on when and how many times investors can use it.

Set the right SIP parameters: No one wants to do calculations manually over and over to find out which investment amount, frequency or time is suitable for their mutual fund investment. With an SIP calculator, you can change the parameters as many times as you want at the click of a button. This tool can help investors find the right parameters for their mutual fund investment.

Devise an investment strategy: Investors can change the installment amount and frequency of the SIP. This means that if you have surplus cash at the end of a month or a cash crunch, you can accordingly modify your SIP. An SIP calculator helps you find out how these changes affect the future value of your investment. Using an SIP calculator, you can easily devise a sound investment strategy.

Factors affecting the future value of SIPs

Rate of return: This indicates how much your money grows. A higher rate means more returns on your investments.

Investment amount: This is how much money you put into your SIPs. The more you invest, the higher the value your investments will achieve.

Investment tenure: This means how long you keep your money in SIPs. The longer, the better for your investments.

Frequency of investment: This means how often you invest in SIPs. More frequent investments could mean a higher future value.

Inflation: This means prices for things go up over time. It can decrease the final value of your investments.

Market volatility: This means how much market fluctuations can affect your returns. A stable market is usually better for your investments.

Conclusion

To sum it up, SIPs are one of the most preferred ways of investing in mutual funds. It can help you achieve your long-term financial goals such as funding you child’s higher education, planning their wedding, buying a car, or saving for your retirement. And, with the help of an SIP calculator you can plan your investment wisely and reach your financial goals with ease. Investors must however note that all these returns are indicative and based on assumptions. Actual performance will depend on market conditions, type of scheme selected, expense ratio of the scheme etc. Accordingly, investors must check with their financial advisor on undertaking SIP investments and should not solely rely on SIP calculator to guide them on their investments.

FAQs:

What if I invest Rs.15,000 per month in SIP for 15 years?

Assuming the rate of return to be 12% per annum, you can build a corpus of approximately Rs.75 lakhs by investing Rs.15,000 per month in SIP for 15 years. (For illustrative purpose)

Can I withdraw SIP anytime?

Yes, you can generally withdraw your SIP anytime. However, you must note that there may be certain conditions or charges associated with early withdrawals. Thus, before investing in an SIP, it’s essential that you understand the terms and conditions of the investment, including the lock-in period, if any, exit loads, and other charges that may apply in case of early withdrawal.

Is SIP tax-free?

Although SIPs are not a tax-saving instrument, the investments made through SIP in certain mutual funds can offer tax benefits. For example, the investments made in Equity Linked Savings Scheme (ELSS) funds through SIPs are eligible for tax benefits, subject to the overall limit of Rs.1.5 lakh per year under Section 80C. However, you must note that the tax benefits can only be availed if the investment is held for a minimum of three years. This is because the money gets locked in, and thus, the investor won’t be able to liquidate their investment during the lock-in period.

What is a step up SIP?

A step up SIP is a variation of the traditional SIP where you can increase your investment amount by a fixed rate at regular intervals. For instance, you can choose a 10% annual step up, wherein your SIP amount will automatically increase by 10% every year. This approach can align your investments with rising income, boosting long-term wealth creation. To understand the potential growth of your investment with these steady increments, you can use a step up SIP calculator. Based on your starting SIP amount, investment horizon and step-up rate, the calculator estimates how a step up SIP can potentially boost your final corpus.

Is a mutual fund SIP calculator accurate?

While an SIP calculator provides estimates based on inputs, the actual returns may vary. It's a useful starting point, but market fluctuations and fund performance can impact actual results.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. This document should not be treated as endorsement of the views/opinions or as an investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.