Systematic Investment Plans or SIPs are a great tool available to investors to generate long-term wealth. It instills much-needed financial discipline among investors by ensuring that they stay invested at all market levels. There are a several benefits of SIP investments, as a result of which they are immensely popular among retail investors. Several investors are worried if they are investing the right amount in their SIP mutual funds. Or they often wonder if they can analyse the future returns on their mutual fund investments through SIPs? Well, they can. This article will explain the tool available to investors to calculate their SIP performance and how to use it efficiently.
How to calculate returns on SIP mutual funds?
SIP calculator is a financial tool offered by most mutual fund houses and AMCs (asset management company) that allows investors to determine the future value of their SIP investments. One can use an SIP return calculator either to determine the future value of their investments on completing the investment horizon or to evaluate the SIP investment amount needed to reach a particular specific target over a period of time. Thus, a mutual fund SIP calculator offers a roadmap to investors to help them achieve their various financial goals. Long gone are those days when the agents, relationship managers, or distributors would dupe their clients by offering complex calculations on expected returns on SIP investments and promising unrealistic returns to investors. An SIP return calculator helps to empower investors to do their financial planning in a systematic and smart way.
How to use a mutual funds SIP calculator?
SIP calculators are quite easy to use and can be used by anyone in a seamless manner. If you wish to calculate the future returns on your investments, usually, an SIP calculator has 3 input boxes:
- Expected annual returns of the desired mutual fund schemes
- Investment duration
- Monthly investment amount
You need to determine the average expected returns on your mutual fund investments. Next, you need to input the investment tenure of your SIP mutual fund. Though SIP mutual funds do not have any lock-in periods (except ELSS funds that have a lock-in period of three years), experts recommend investors to stay invested for a longer duration – say 10 years or more to allow their SIP investments to reach their maximum potential. Lastly, you need to enter the amount you wish to invest in SIP. It can be as low as Rs 100 per month. Once you input these three values, simply click on the calculate button to understand the future value of your investments. One can play with these values to determine what works best for their financial portfolio based on their budget, risk appetite, financial goals, and investment horizon.
Most SIP return calculators also offer an additional feature known as – adjust for inflation. This helps to provide future value of your investments after accounting for an appropriate rate of inflation. It is always a good idea to adjust your earnings against inflation as it provides a more realistic and truer picture of the future value of your investments.
Lastly, you can also use an SIP return calculator if you wish to achieve a specific corpus and wish to know the appropriate SIP investment amount needed to achieve that. Happy investing!