Do you calculate returns before investing your money in a mutual fund? SIP calculators are free, online tools that can help you do this.
What is the SIP mode of investment, and what are SIP calculators?
If you intend to start a mutual fund investment online, you can choose between two modes of investment – systematic investment plans and lump sum investments. The latter allows you to invest all your corpus at once, saving you from the hassle of contributing monthly to the fund. SIPs, on the other hand, help you inculcate an investment discipline and offer other benefits like “Rupee-Cost Averaging”. You can start an SIP investment with a monthly contribution of ₹ 500 and can exit the investment at any time. An online mutual fund calculator or SIP calculator helps you calculate your mutual fund returns for a fixed period before investing in the fund. These are free, online tools that are also very easily accessible.
How do SIP calculators work?
If you wish to calculate your mutual fund’s maturity amount by yourself, you can use the following formula:
M = P({[1 + i]^n-1}/i) * (1+i)
Where M is the amount you will receive on maturity, P represents the invested sum at regular intervals, N is the count of payments made, and I is the periodic interest rate. SIP calculators require the user to input three details – the investment amount, the investment period, and the expected rate of return. The calculator will return the value of your returns on maturity based on these inputs. For instance, if an individual invests ₹ 1000 every month over 20 years with an SIP return of 12%, their returns on maturity will be approximately ₹ 2,40,000. SIP calculators also account for inflation and other macro-economic factors while calculating returns.
Investing in the right mutual fund using an SIP calculator:
If you wish to make the right investment choice by selecting a mutual fund based on the results of an SIP calculator, you can follow these steps:
Fix your investment goals:
You must know your investment goals before starting an SIP investment in a mutual fund. Knowing your investment goal will help you decide on the ideal investment tenure and amount.
Assess your risk appetite and liquidity-related concerns and prepare a shortlist:
Next, you must assess your risk-taking capacity and your liquidity-related priorities. After doing this, you can prepare a shortlist of mutual funds that can help you achieve your investment goals.
Calculate returns using an SIP calculator:
In the third step, you must calculate the returns of all these funds using an SIP calculator and compare all these funds.
Consider tax efficiency and select the best mutual fund:
You should also check the tax benefits of investing in each of these funds to choose the best mutual fund.
Online SIP calculators help with easy investment planning and help you know the ideal SIP amount for your investment. You can also know the ideal investment period and easily compare options using these calculators.