A Systematic Investment Plan (SIP) is a disciplined way of investing regularly to help you achieve your dreams. It is often difficult to decide how much money you need to set aside to meet your financial requirements. You may have different life goals that need to be achieved at varying timelines within your lifespan, be it your child’s education, your retirement, your wedding, buying your dream house, or saving for your retirement. Here is where the SIP calculator comes to the rescue.
It is an online tool that helps decide how much you should invest at intervals to give you the desired returns in the future date. Typically, the SIP calculator requires three different sets of information: the SIP amount, duration, and the expected return rate per annum. If you are sure of these three factors, the calculator computes how much you will earn on your investment.
For instance, if you contribute X amount monthly for Y number of years at a Z rate of expected return, the SIP calculator uses a mathematical formula to derive the future value of your investment.
How to use the calculator?
You can use them in two ways.Estimate the corpus you want to create with a monthly SIP amount based on the tenure and yield assumptions. Moreover, you can also calculate the monthly SIP amount required based on the target corpus you wish to achieve. Your primary assumptions like the return rate and the tenure must be considered. These key factors decide the results you want to achieve.
Such calculators can be easily found online and are simple to use. Even first-time investors find it easier to understand SIP investments with these calculators. Through the calculator, investors can make strategic investments to meet their financial goals in the long term.
Read Also: Which brand of Hand gripper is best?
How are SIP returns calculated?
While you may not need to calculate the returns manually, knowing how these numbers get derived accurately is always good. The SIP calculator uses the following formula:
FV = P x {[(1 + r)n – 1] ÷ r} x (1 + r)
Here,
FV = Future investment value
P = Principal contribution monthly
r = Expected monthly return rate
n = Number of contributions towards the principal
For example, if you wish to know the future value for a SIP with monthly contributions of Rs. 1,000 for two years at an expected annual rate of return of 12%; this is what the formula would look like.
FV = 1000 x {[(1 + 0.01)24 – 1] ÷ 0.01} x (1 + 0.01)
Here, ris considered 0.01 since our expected rate of return is 12% per annum, which translates to 1% monthly.
Conclusion
It isexcellent to know the returns generated on your investments beforehand. You only need to follow a few easy steps. The SIP calculatorcomputesthe accurate returns on investments. It also helps you make the right investment decisions. Furthermore, when you know the exact value of your investment, it is easier for you to plan your future accordingly.
Disclaimer – ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. – ICICI Venture House, AppasahebMarathe Marg, Prabhadevi, Mumbai – 400 025, India, Tel No : 022 – 6807 7100. AMFI Regn. No.: ARN-0845. We are distributors for Mutual funds. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.Please note, Mutual Fund related services are not Exchange traded products and I-Sec is just acting as distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein mentioned are solely for informational and educational purpose.
