A Systematic Investment Plan is a popular way for many investors to accumulate wealth over time. SIPs allow you to invest fixed amounts regularly into mutual funds or other investments. But how can you estimate your potential returns from SIPs? This is where a SIP calculator comes in handy. Read on to explore why every investor should be using a SIP calculator.
What is a SIP Calculator?
A SIP calculator is an online tool that estimates returns on mutual fund investments made through SIPs. By entering details like monthly investment amount, investment tenure, and expected returns, the calculator forecasts the maturity amount you can earn.
SIP calculators use the power of compounding to arrive at maturity corpus estimates. Compounding refers to earning and accumulating returns on your principal, accelerating growth exponentially over long periods.
Key Benefits of Using a SIP Calculator
Here are some major benefits of using a SIP calculator for your investments:
1. Goal Planning
A SIP calculator helps assess if your current SIPs can achieve financial goals like retirement planning or children’s education based on realistic estimates. You can accordingly plan your investments.
2. Customised Analysis
You can model various scenarios to arrive at the ideal SIP needed to achieve monetary targets by tweaking parameters like tenure, investment amount, and expected returns.
3. Progress Tracking
A SIP calculator allows periodic tracking of actual portfolio performance vs. projected returns to ensure you are on track to reach investment objectives.
4. Portfolio Optimisation
You can use SIP calculator analysis to fine-tune your mutual fund portfolio by identifying funds that are not performing as expected and making suitable replacements.
How to Use a SIP Calculator
Here is a step-by-step guide to using a SIP calculator:
1. Find a SIP Calculator
Leading financial services companies like banks and mutual funds offer free SIP calculators on their websites. You can also find independent SIP calculators online.
2. Input Parameters
The typical parameters needed are monthly SIP amount, tenure, and expected returns. Some calculators may need additional inputs like initial lump sum investment, SIP date, and frequency.
3. Review Projections
The calculator displays the estimated future value of your SIPs along with periodic fund values. You also see total investments, returns earned, and returns percentage.
4. Tweak Inputs as Needed
Play around with inputs like increasing SIP amount or tenure to see projected outcomes. This allows scenario planning to identify the optimal investment plan.
5. Track Actuals Against Projections
Run periodic SIP calculator projections to see if your portfolio is realistically on track to achieve financial targets. If not, make suitable course corrections.
Common SIP Calculator Mistakes
While SIP calculators are useful investment tools, beware of these common errors:
1. Unrealistic Return Expectations
Assuming very high returns that are not aligned with historical mutual fund performance leads to inflated projections.
2. Ignoring Inflation Impact
Not accounting for inflation eating into purchasing power results in underestimating the future corpus required.
3. Infrequent Revisiting of Plans
Not periodically reviewing changing personal circumstances against original goals can leave your finances underprepared.
Conclusion
A SIP calculator is a must-use tool for every mutual fund investor employing SIPs. By generating personalised projections tailored to financial objectives, investors get clarity on investment strategies to meet money targets. Periodic comparison of actual portfolio values against projections also enables timely course corrections. Using a SIP calculator judiciously helps all investors harness compounding to build long-term wealth through SIPs.
For accurate and reliable SIP projections customised to your unique needs, check out the SIP and EMI calculators offered by leading insure-tech company Acko. Acko’s user-friendly calculators help investors plan SIPs aligned with long-term financial goals.
