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What is SIP Calculator ?
Today, more than Rs.11,000 crore per month come into mutual funds through the systematic investment plan (SIP) route. These SIP investors are largely individuals and they are retail investments in equities or hybrid products. For any SIP investor it is very important to know 2 things:
- How much can regular investments grow over a period of time
- How much I need to save to reach a target corpus after a number of years
These questions are effectively answered by the mutual fund SIP calculator. The SIP calculator online available on the websites can help you to estimate either of the unknown variables helps you estimate how your SIP will grow over time based on certain assumptions of time period and rate of return.
What you must remember is that the SIP calculator is a two way product which can help you estimate the target amount both ways. On the one hand, the SIP calculator tells you the target amount or the target SIP saving required per month. On the other hand, it also shows you how much your fixed or variable SIP would grow into over a period of time.
CONCEPT OF SIP CALCULATOR?
The SIP Calculator is normally a very dynamic calculator. It allows you various permutations. Generally, the SIP is used to meet long term financial goals like retirement, nest egg, children’s education etc. Now the complexity is that SIPs can be weekly, monthly or quarterly, although monthly SIPs are the most common. The SIP calculator online helps you to check your wealth creation or target SIPs under all these different conditions.
Let us understand what are the inputs and the output in a SIP calculator. Firstly, you can use a SIP calculator to estimate how much a particular SIP amount would grow to over a fixed period of time at an assumed rate of return. In this case, the inputs are SIP amount, escalation if any, periodicity of SIP, tenure of SIP, assumed rate of return etc. Secondly, the SIP calculator can tell you how much monthly SIP you need to save to reach a target corpus. In this case, the key inputs are factors like target corpus, rate of return assumed, tenure, periodicity of SIP, date of SIP etc. Once the inputs are fed, SIP calculator gives the output.
UNDERSTANDING THE WORKING OF A SIP CALCULATOR
There are 5 things you must know about the working of a SIP Return calculator
- The SIP return calculator helps to determine the amount you need to invest inan SIP to reach a target corpus after a certain years.
- The SIP return calculator also gives you a better basis to compare mutual fund performance on the basis of SIP returns rather than just point to point returns.
- SIP calculator tells you the target amount your existing SIP will grow into based on your assumptions. This is useful for retirement and other long term goals.
- SIP calculator helps you to compare the performance of a static SIP with a dynamic/stepped-up SIP before taking your SIP decision.
- The SIP Return calculator breaks up your corpus into capital contribution and investment returns and effectively tells you about the wealth ratio.
Normally, SIPs are most effective when continued over a long period. Never discontinue SIPs during tough times. That is what the SIP Calculator online would tell you.
COMPARING SIP INVESTING VERSUS LUMP SUM INVESTING
One of the common questions we normally have is whether with a target corpus in mind, you should invest lump-sum or opt for SIPs. The more refined versions of the SIP calculator will also allow you to compare a lump-sum investment model with a SIP investment model.
The SIP Return calculator online is a beneficial tool which helps you with the estimated returns you will earn after the investment tenure or the SIP calculator can also tell you the amount of SIP you need to structure. In both cases, the SIP calculator will allow you to compare the lump sum model with the SIP model.
USING THE SIP CALCULATOR IN PRACTICE
SIP calculator can actually be used in 2 ways. Firstly, you can use the SIP calculator to estimate the corpus you can create with a monthly SIP contribution based on an assumed tenure and yield. Alternatively, you can also use the SIP calculator to estimate monthly SIP amount to be contributed based on target corpus. The basic requirement in these cases is that you must be ready with your key assumptions like rate of return and the tenure and these must be properly deliberated in advance.
How much can I invest in a SIP?
That is entirely up to you and up to your goals. There is no limit defined as to how much you can invest in a systematic investment plan or SIP. It must be decided based on your goals and the corpus you propose to achieve.
Does the tenure have a maximum tenure?
You can define the tenure of the SIP or you can also define it as a perpetual SIP. There is nothing like a maximum tenure of a SIP. SIP can be for 1 year or 5 years or 10 years or 20 years depending on your choice. Of course, irrespective of the tenure of the SIP, you can cancel the SIP whenever you want by giving at least one-month notice in advance.
How are SIPs different from mutual funds?
One is a means to invest and the other is an instrument to invest in. SIPs are a means of investing in mutual funds. SIP is just a structure wherein you invest fixed amounts each month on a set data in a particular fund. You don’t worry too much about timing the market because in the long run it is time that works better than timing. The amount remains the same through the year so you get the benefit of rupee cost averaging. In other words; when the NAV goes up you get more value and when NAV is down you get more units.
Can the SIP amount be modified in between?
That is entirely your choice, but just ensure to give your AMC 1 month notice in advance so it can happen smoothly. Otherwise, you can modify the SIP amount at any time of time and this can be done either online or offline. This advance intimation is more so in case the SIP is an auto-debit SIP, because in that case, the bank has to also be simultaneously intimated. A better way is to modify your SIP in a systematic or dynamic way each year by using a stepped-up SIP. Here are at the end of each year, the SIP amount is automatically escalated either by a percentage increase or by a rupee amount increase.
Is it possible to miss the SIP in between?
Remember that SIPs are long term investments for your own family and financial goals. Hence it is never advisable to miss SIPs. However, in the case of temporary financial constraints (as many investors did during COVID), you can temporarily stop the SIP. In this case, you can do the same by intimating the fund about a temporary freeze. The SIP will be frozen for a fixedperiod and automatically start once again after the freeze period is over.
What are the types of SIPs available?
Actually, there are many variants of SIPs available.There are fixed SIPs, which are the plain vanilla products. Then there are stepped-up SIPs where the amounts increase annually. There are also balloon SIPs depending on your core objective. The list can go on.