The Role of a SIP Calculator in Mutual Funds

Investors looking for a disciplined method of investing in mutual funds opt for the Systematic Investment Plan or the SIP route. This involves investing a fixed amount in a mutual fund scheme at regular intervals which can be a week or a month or a quarter. The investment amount can be as low as Rs 500 and can be paid via the auto-debit facility of a bank. Now to find out what amount should be invested for how long to achieve a specific goal you can take the help of a SIP mutual fund calculator.

SIP Mutual Fund Calculator

The SIP mutual fund calculator is easily available online and allows investors to estimate the return on mutual fund investments made through the SIP route. The calculator provides an estimate of the returns that can be generated by depositing a fixed amount every month or quarter for a specific period. The actual return from a mutual investment may, however, vary due to several factors including the load and the expense ratio.

Inputs Required by SIP Calculator

The calculator gives a fair idea about the SIP amount required to achieve your financial goals taking into account the expected annual return. The use of the calculator requires the users to input

  • the amount of SIP they wish to invest
  • the frequency of the investment
  • the duration of the fund and
  • the expected returns.

By using this information, the calculator gives the amount that the investor is likely to get at the end of the SIP. The input figures can be changed or modified to get the desired amount required to achieve a specific goal. This helps the investor choose the optimal SIP amount and duration for creating the desired corpus.

The formula used in this calculator is

M = P × ({[1 + I] N – 1} / I) × (1 + I). wherein

M is the maturity amount

P is the amount of SIP

N is the number of payments made by you

I is the periodic rate of Interest

Some SIP calculators have an additional input button for adjusting for inflation. You can use this option if you have quantified your goal without considering the impact of inflation. If you select yes, the calculator incorporates the inflation into its calculations and then gives you the maturity amount. However, if you choose no, the calculation is done without accounting for inflation.

Benefits of SIP Calculator

A SIP mutual fund calculator helps investors:

  • Decide the investment amount
  • Identify the tenure of investment
  • Get an estimate of the total Return on Investment for a specific tenure

Investors can use this calculator to plan their SIP investments to create wealth and achieve specific goals. They can even go for multiple SIPs to achieve different goals.

To get a realistic idea of the maturity value of your SIP investment it is important to input the realistic expected return (you can take this from the respective fund’s previous performance) and not something which you desire for. This will give you a clear idea about the SIP amount and duration required to achieve the desired maturity value.

The use of the SIP mutual fund calculator can help you plan your investments well. While you can choose a mutual fund scheme based on your risk appetite, the duration and the SIP amount should be decided based on your financial goals.