Systematic Investment Plan, commonly referred to as SIP, is a preferred mode of
investment offered by mutual fund companies that allows you to invest money regularly.
The
power of compounding
enables to grow your funds over time to a sizeable corpus.
SIP contributions can be made weekly, monthly, quarterly or in lump sum. The rate
of return applied to your contributions determines the final amount that you receive on
maturity or when you sell your SIP. A SIP return
calculator can help you determine this amount depending on the rate of interest and the
time you stay invested. However, you must remember that the actual money that you
receive can vary from the result on the calculator
due to several factors that cause market volatility.
How does a SIP calculator work?
You will require the following information in order to use the SIP calculator. Returns from your investments are calculated on the basis of the following:
The SIP calculator will generate a result using the above information and the following formula:
Amount invested × ({[1 + Periodic rate of interest] Total number payments – 1} / Periodic rate of interest) × (1 + Periodic rate of interest).
Here’s an example to understand this better:
How does a SIP calculator work?
Let’s take the example of Ms. S. She is a private sector employee who has decided to invest ₹ 5000 every month in a SIP for a minimum of 2 years. The expected rate of return for her investment is 12%. So, as per the formula, the calculator will give out the following results:
Total amount invested in the SIP
₹ 1,20,000
(Invested 5,000 p.m. X 12 X 2 yrs)
(Invested 5,000 p.m. X 12 X 2 yrs)
Total amount at maturity of the SIP
₹ 1,36,216
However, as stated above, it is essential to keep in mind that the amount that Ms. S receives can be more or less than the figure on the calculator depending on the market conditions in these 2 years.
What are the advantages of using a SIP calculator?
The SIP return calculator can be instrumental in many ways. Here are some benefits of using this calculator:
You can plan your SIP investments:
The calculator provides estimations of how much you can save and earn with the power of compounding .
You can balance your other investments:
Most experts suggest keeping a well-diversified portfolio that includes a combination of stocks, mutual funds, real estate and more. Once you know your estimated earnings from a mutual fund SIP, you can allocate money to other forms of savings and investments.
You can set a clear time frame:
The calculator helps you ascertain your returns as per the time horizon that you select. So, if you do not meet your goal, you can consider increasing the total time for staying invested.
You can avoid errors:
Manual calculations can lead to mistakes and discrepancies. An online SIP calculator eliminates the chances of all blunders, giving you a realistic outlook. It also saves a lot of time as these calculators are fairly quick. All you need to do is enter the information, and your result is shown within seconds.
You can pick the right product:
There are several funds available in the market. The rate of return for each could differ. A SIP calculator can help you choose one that is ideal for your goals.
Why should you buy a term insurance plan along with a SIP?
Buying term insurance is a must for chief earning members of a family as it protects your family against unfavorable financial situations in your absence. Term insurance acts as a substitute for income. It can be used as a way to pay off loans and other debts and allows your loved ones to fulfil their dreams and desires for the future.
Many companies are now offering term insurance along with a SIP. However, the
life cover for these plans is not more than ₹ 50 lakhs.
The ideal life
cover for a term plan, as suggested by financial experts, is at least 15 times
the amount of your annual income. So, for instance, if your annual income is ₹
10,00,000,
you should pick a life cover of at least ₹ 1,50,00,000.
In this regard, the term insurance amount offered by mutual fund companies may not be adequate for all individuals. Hence, it is advisable to purchase a plan outside of your SIP. Moreover, since a SIP could be a short-term investment and term insurance is a long-term agreement, mixing the two could be a problematic thing to do.
Having said that, the term insurance cover provided by SIPs does not cost anything. So, it could be a good idea to get it along with your plan if you do not have a term insurance policy at the moment. But you should not rely on this for the long run and invest in a wholesome policy from a recognized insurer as soon as possible.
Frequently Asked Questions
COMP/DOC/Feb/2024/132/5455