SIP Calculator

What Is SIP Calculator

An SIP Calculator is a helpful resource that allows investors to gauge the possible returns on their SIP mutual fund investment. Incorporating the amount of investment, the period, and a probable rate of return allows the user to analyse possible returns and make a rational financial choice. With the popularity of SIPs, particularly among Millennials, this calculator facilitates easy financial planning by giving a transparent estimate of the investment growth over time. Although actual returns will differ based on market conditions, the SIP calculator gives a sound estimate of how investments can increase and thus is a must-have tool for efficient financial planning.

How Can SIP Calculator Help You?

The SIP calculator was primarily created to project the possible returns on mutual fund investments. Nevertheless, it's crucial to remember that the actual return of a mutual fund scheme may differ due to other reasons. The SIP calculators do not also represent elements like exit loads or expense ratios, as they may apply.

Using an SIP calculator, you will know how much wealth should be accrued from monthly SIP investments and their returns. It will give you a rudimentary idea of the expected corpus on maturity against your SIP amount. 

How Does SIP Calculator Work?

A SIP Calculator follows the below formula:

FV = P [ (1+i)^n-1 ] * (1+i)/i 

Where,

• FV = Future value or the amount you get at maturity.
• P = Amount you invest through SIP
• i = Compounded rate of return
• n = Investment duration in months

How To Use Cleartax SIP Calculator?

You can easily use the ClearTax SIP Calculator by following the steps given below:

• Enter the Monthly SIP amount
• Now, fill out other details, such as investment duration and expected rate of return.
• The calculator will show you the estimated corpus with a breakdown of earned interest and invested amount. 

Example Of SIP Calculator

Jane is 30 years old and works as an investor. She is thinking about how to invest money for retirement purposes, so she decides to invest in a mutual fund product via a Systematic Investment Plan.

• Investment amount: ₹35,000 per month 
• Investment period: 30 years 
• Expected interest rate: 8% per annum
• Frequency of investments: Monthly

Result:

With the above formula, the SIP Calculator would give the  following results:

Future Value of the investment: ₹5,25,10,331 

Total Investment: ₹1,26,00,000 (35,000 * 12 * 30)

Potential Returns: ₹3,99,10,331 (Future Value - Total Investment)

Advantages Of Using Cleartax SIP Calculator

SIP calculator India has its advantages that it offers to the investors:

• Accurate Planning: SIP calculators forecast the future growth of an investment well based on specific input criteria. It includes the amount to be funded, the duration, and the expected return. SIP calculators apply mathematical algorithms. It develops definite approximations so traders can manage their finances.
• Comparison of Several Scenarios: Changing the components of your inputs in SIP calculators, like amount, duration, and anticipated rate, means that they help users evaluate various investment conditions. They assist them in making informed choices. It is based on their economic objectives. Thus coming up with alternative investment strategies that may result in desirable outcomes.
• Visualisation of Potential Returns: Through systematic investing, SIP calculators help buyers see how their money can grow. Regarding their investing plans, graphs and charts are also available to help them understand the power of compounding. It enables them to make informed choices.
• Goal Setting and Progress Monitoring: SIP calculators aid traders in setting attainable financial targets and monitoring their progression towards them. Investors can estimate the required investment amount by entering their specific financial goals, such as retirement savings or funding their child's education. From there, they can see how they have progressed over time.

SIP Investment Returns Chart

The table below shows how the power of compounding can increase your returns every year with the same investment amount.

Types Of SIP

Systematic Investment Plans (SIPs) exist in different forms, each designed to meet various financial objectives and investor requirements. Knowing the different types of SIPs will enable investors to choose the appropriate method for optimum returns.

• Regular SIP: A Regular SIP is the simplest and most popular form of Systematic Investment Plan. One invests a fixed amount at regular intervals, for example, monthly or quarterly, in a mutual fund scheme. It's best suited for disciplined investors who want to accumulate wealth over time. By regularly investing a predetermined amount, investors can avail themselves of rupee cost averaging and reduce the effect of market volatility.
• Top-Up SIP (Step-Up SIP): A Top-Up SIP, or Step-Up SIP, enables investors to increase their SIP amount occasionally. This SIP is ideal for those whose income level is likely to increase. By increasing the investment amount gradually, investors can speed up their journey toward financial objectives, and it becomes simpler to reach higher targets.
• Flexible SIP: Flexible SIPs offer the convenience of modifying the SIP amount or skipping instalments as per the investor's financial situation. This flexibility makes it an excellent choice for individuals with fluctuating income or unexpected expenses. Investors can adjust their contributions to suit their cash flow without disrupting long-term investment plans.
• Perpetual SIP: Perpetual SIPs do not have a predefined end date and continue until the investor decides to stop them. This feature makes them suitable for investors with long-term financial goals or who prefer an open-ended strategy. Perpetual SIPs provide the flexibility to maintain investments without worrying about expiration dates, allowing for consistent wealth accumulation over time.
• Trigger SIP: Trigger SIPs are meant for savvy investors who follow market conditions actively. They are programmed to trigger or stop based on certain events, like hitting a specific NAV, index level, or date. With this facility, investors can make informed decisions responding to market movement, aligning investments with their risk tolerance and expectations.
• Goal-Based SIP: Goal-Based SIPs are specifically designed to assist investors in realising specific financial goals, including buying a home, saving for a child's education, or retirement planning. The SIP frequency and tenure are designed to accumulate the target amount over a specific period, ensuring the investment plan is aligned with the investor's life plans.
• Multi-SIP: A Multi-SIP streamlines the investment process by enabling investors to invest in various mutual fund schemes using a single SIP. This is especially helpful for diversifying across asset classes and fund categories. Multi-SIPs provide a hassle-free way of managing a diversified portfolio by combining various schemes under a single plan.

Benefits Of SIP

Systematic Investment Plans (SIPs) are one of the most convenient and efficient ways to invest in mutual funds. They provide numerous advantages, making them attractive to novice and experienced investors.

• Disciplined Investing: SIPs inculcate financial discipline through regular investing over some time. Investors invest a predetermined amount periodically, which means a consistent way of creating wealth. This system helps avoid timing the market and ensures steady saving behaviour.
• Rupee Cost Averaging: The significant advantage of SIP is rupee cost averaging, which aids in eliminating the effects of market volatility. Since investments are made periodically by depositing a predetermined sum, larger quantities are invested at cheaper rates and lower units at higher prices. After some time, the investment price averages out, decreasing the risk from market volatility.
• Convenience and Flexibility: SIPs are incredibly convenient because they can be conveniently automated, with the amount of investment deducted directly from the investor's account. They also provide flexibility because investors can begin with a small sum, temporarily halt investments, or raise contributions as their financial position improves.
• Power of Compounding: SIPs use the power of compounding, which allows investors to gain interest in their original amount and return gained over time. The sooner the investor invests, the more power there is in compounding and accumulating massive amounts of wealth over time.
• Affordability: SIPs allow individuals to invest in mutual funds with small amounts, typically starting as low as ₹500 per month. This affordability makes them accessible to many investors, including those with limited financial resources.
• Goal-Oriented Investing: SIPs are an excellent tool for goal-based financial planning. Whether saving for a child’s education, buying a house, or planning for retirement, SIPs enable investors to align their investments with specific financial objectives and systematically work toward achieving them.
• Reduces Emotional Investing: Investing through SIPs eliminates the need to make emotional decisions based on market highs and lows. With a predetermined investment plan, investors avoid impulsive actions, ensuring a more rational approach to building wealth.
• Diversification: SIPs provide access to a wide range of mutual funds, allowing investors to diversify their portfolios across different asset classes and sectors. This diversification helps spread risk and enhances the potential for returns.

Mistakes to Avoid in SIP

While SIPs are an excellent tool for wealth creation, inevitable mistakes can undermine their potential. Awareness of these pitfalls can help investors make the most of their investments.

• Starting Late: Another frequent error is to start late for an SIP. The earlier you start, the more influential the compounding impact will be. By starting late, you are minimising the duration your investments have to appreciate, curtailing the chance to build wealth in the long term.
• Avoiding Due Diligence: Investors usually select mutual funds without properly researching the fund's performance, goals, and risk. Choosing the wrong fund may result in poor returns or mismatched financial objectives. Always analyse a fund's past performance, expense ratio, and fund house reputation.
• Ignoring Financial Goals: Investing without aligning SIPs to specific financial goals can lead to a lack of direction and inefficient resource allocation. Always set clear objectives, such as saving for retirement, buying a home, or funding education, and choose SIPs that align with these goals.
• Investing Without a Budget: Committing to a SIP amount without assessing your financial capacity can strain your budget. This may lead to skipping instalments, which can disrupt your investment journey. Ensure the SIP amount is affordable and sustainable within your monthly income.
• Stopping SIPs During Market Downturns: Market fluctuations can tempt investors to stop their SIPs out of fear. However, continuing SIPs during downturns allows you to buy more units at lower prices, resulting in higher returns when the market recovers. Stay consistent regardless of short-term volatility.
• Not Reviewing Investments Periodically: Failing to review your SIPs and their performance can lead to investments stuck in underperforming funds. Regularly evaluate your portfolio to ensure it aligns with your goals and shift to better-performing funds if necessary.
• Focusing Solely on Short-Term Returns: SIPs are designed for long-term investment. Focusing only on short-term gains can lead to premature withdrawal or discouragement if returns are initially low. Patience is key to reaping the full benefits of a SIP.
• Ignoring Exit Load and Expense Ratio: Investors often overlook mutual funds' exit load and expense ratio. These costs can significantly impact returns, especially in the long run. Understand all charges before investing.
• Withdrawing Investments Prematurely: SIPs work best when held for the long term. Withdrawing prematurely, especially before achieving your financial goals, undermines the power of compounding and wealth accumulation.

A SIP calculator is valuable for investors who want to plan and maximise their mutual fund investments. It gives a precise calculation of probable returns based on investment value, tenure, and anticipated rate of return, enabling people to make sound financial choices. Whether investing for retirement, education, or wealth generation, employing an SIP calculator can give you a strategic edge by seeing the power of consistent and disciplined investing. With the aid of this tool, you can remain on track with your goals and optimise the compounding effect over time.