Deciding to invest in a mutual fund through the Systematic Investment Plan (SIP) option is a good call. To make it a great call, you should use an online SIP calculator to know the right SIP amount you should choose as well as the portfolio value that you can expect.
What is a SIP mutual fund calculator?
A SIP mutual fund calculator allows you to accurately determine the amount you need to save and invest to meet your financial goals. For instance, if you are investing in a mutual fund to buy a car after three years and you need Rs 8 lakh, an online SIP calculator will tell you how much you need to begin investing monthly from now on to reach that goal in your desired timeline.
A SIP mutual fund calculator estimates the kind of returns you will earn on your mutual fund investment and gives you a projected portfolio value at the end of your investment period. This helps you have a fair idea of how much your money will amount to and allows you to compare your mutual fund investment with other investment options to see if that’s the investment best suited for this specific financial goal of yours.
How to use an online SIP calculator?
You can find a SIP calculator on most of the Asset Management Companies (AMC) official websites. Here are the things that you need to enter:
- SIP or lumpsum investment
- Monthly investment amount
- Expected rate of return
- Period in years
Here is what the result will include:
- Total invested amount
- Estimated returns amount
- Total portfolio value
You can try various permutations and combinations of the monthly investment amount and the period to arrive at a total portfolio value that will allow you to meet your financial goals. As for the expected rate of return, you should look at the factsheet of the mutual fund schemes that you have zeroed in on.
Online SIP calculators tend to use this formula:
Portfolio value = P [(1+i)^n-1]*(1+i)/i]
P = SIP amount you invest
i = The rate of interest
n = The number of SIP payments you make
Things to keep in mind when using a SIP calculator
When using a mutual fund return calculator, it’s important to note the following:
- You can use it for both a lumpsum investment as well as a SIP investment in mutual funds
- Most mutual fund calculators do not have the option to account for inflation
- Your portfolio value should be adjusted for the inflation rate to give you a real estimate of its worth at the end of the investment period
- The SIP portfolio value does not account for the expense ratio and the exit load, if any
- The rate of return is only a rough estimate, and your actual returns may differ depending on the market conditions
Strategic planning is the key to personal finance and an online SIP calculator helps you do just that. By helping you figure out the ideal investment amount and tenure based on your financial goals, it gives you a clear way forward. It also takes away the headache of having to manually calculate your estimated returns and investment value when you invest in a mutual fund.
The MF calculator is a quick and convenient investment tool that you should make sure to use before you invest in any mutual fund scheme. Using it during the initial steps of financial planning and when comparing different investment options and strategies can be beneficial.