How To Use SIP Calculator| Systematic Investment Planning?

Systematic Investment Planning, abbreviated as SIP, is one of the most effective strategies for investing in mutual funds in India. It enables the investor to invest a certain pre-determined amount at a regular interval (either weekly, monthly or quarterly). This strategy not only fosters saving habits but also aligns well with the financial objectives of investors, making it a preferred choice for many. However, to plan the investment properly, one needs to gain detailed insights about the returns. It’s here that a systematic investment plan calculator becomes of paramount importance.

A systematic investment plan calculator is a tool that helps an investor ascertain the value of their investments made via a SIP over a given period. It allows the investor to measure the returns on their mutual fund investments in a more accurate and precise manner, thus aiding in strategic investment planning.

Now let’s delve into how to use a systematic investment plan calculator effectively:

Step 1: Input SIP Amount:

The first step while using a systematic investment plan calculator is to enter the proposed SIP amount, which is the amount one intends to invest monthly. Let us consider it as INR 5000.

Step 2: Choose SIP Frequency:

Depending on the investment strategy, one can choose to invest weekly, monthly, quarterly, etc. For the sake of this illustration, we assume the SIP frequency as monthly.

Step 3: Determine Investment Time Frame:

Next, you should decide your investment tenure. It is always advisable to have a long-term timeframe for investments in mutual funds through SIP. For this example, we’ll consider the investment tenure as 10 years.

Step 4: Enter Expected Return Rate:

The expected annual return rate, which normally ranges from 10-15 % for equity mutual funds, is the next input. We will consider it as 12%.

After entering all the information as suggested above, the systematic investment plan calculator will provide the expected maturity amount at the end of the investment tenure.

For manual calculations, the following formula can be used: M = P × [(1 + r/n)^ (nt) – 1] / (1 – (1 + r/n)^(1/n)), where M is the maturity amount, P is the SIP amount, r is the annual return rate (in decimal), n is the number of times interest applied per time period and t is the time the money is invested for.

Note: The presented figures are hypothetical and they are intended to explain the functionality of a systematic investment plan calculator.

Using a systematic investment plan calculator is fairly simple and offers an array of benefits. It brings transparency to your investment process and helps you have a clear vision about your financial targets. However, it’s pertinent to understand that the outcomes of the calculator are based on the inputs you provide. So, be as accurate as possible.

DISCLAIMER: The financial markets are subject to a multitude of risks. While a systematic investment plan calculator will project the estimated returns you can anticipate, it can’t guarantee the same. Stated returns are mere estimates and not assured returns. Investors are advised to study all the pros and cons, market trends, and risks involved before trading in the Indian financial market.

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