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What is SIP Calculator, and How it Works?

SIPs are a popular way of investing in mutual funds as they allow investors to make small, periodic investments over a period of time. Read ahead to know all about it.

  • 4,310 Views | Updated on: May 10, 2024

A systematic Investment Plan is a popular investment tool in the world of finance. It is an easy and disciplined way of investing in mutual funds, where investors can invest a fixed amount at regular intervals.

SIPs are a great way to build wealth in the long run and can be tailored to meet individual investment goals. In this article, we will discuss how SIP works and why it is a popular choice among investors.

What is a SIP calculator?

A Systematic Investment Plan (SIP) calculator is a helpful tool for investors who want to calculate the potential returns on their mutual fund investments. SIP is a method of investing in mutual funds where investors make regular, fixed investments in a fund over a period of time instead of investing a lump sum amount at once. The SIP calculator helps investors to estimate the future value of their investments and the returns they can expect to earn based on their investment amount, investment frequency, expected rate of SIP return, and investment tenure.

What is the Importance of a SIP calculator?

With a SIP calculator, investors can calculate the expected returns and the amount they need to invest regularly to meet their SIP investment goals. Here are three major importance of a SIP calculator.

Financial Planning

One of the significant advantages of using a SIP calculator is that it helps investors in financial planning. It allows investors to set a target corpus for a particular financial goal and calculate the monthly investment required to achieve it.

Accurate Results

A SIP calculator online uses advanced algorithms to provide accurate results, considering different market scenarios and historical data. This allows investors to have a realistic expectation of the expected returns and adjust their investment amounts or goals accordingly.

Saves Time and Effort

Manually calculating the returns and investment amount required for each investment can be a tedious and time-consuming process. A SIP calculator simplifies the process and saves investors the effort of complex calculations.

How Does SIP Work?

When an investor opts for SIP, they agree to invest a fixed amount at regular intervals. The amount is automatically debited from the investor’s bank account and is invested in the mutual fund scheme of their choice. The investment is made on a pre-decided date, and the investor can choose the date at their convenience.

SIP investments are made at the prevailing Net Asset Value (NAV) of the mutual fund scheme on the date of investment. The NAV is the market value of the mutual fund’s portfolio, and it varies daily. Therefore, the number of units allotted to the investor varies based on the prevailing NAV.

Over a period, the investor accumulates units of the mutual fund scheme. The value of the investment is determined by the number of units accumulated by the investor and the prevailing NAV of the scheme. If the NAV of the scheme increases, the value of the investment also increases, and vice versa.

Benefits of Using a SIP Calculator

The SIP (Systematic Investment Plan) calculator has gained immense popularity among investors due to its ability to provide accurate insights and streamline investment planning. Here are a few of the many benefits a SIP calculator offers:

Goal Planning

SIP calculators are invaluable tools for goal-based investment. By investing in different investment amounts and tenures, investors can assess the feasibility of achieving their financial objectives, such as funding education, buying a house, or building a retirement corpus.

Realistic Expectations

The projections generated by a SIP calculator help investors set realistic expectations regarding their investment growth. It enables them to evaluate the potential returns based on varying investment durations and amounts, guiding them toward the appropriate investment decisions.

Comparisons and Simulations

Investors can compare multiple investment scenarios using a SIP calculator. By altering parameters like the investment amount or tenure, they can visualize the impact on the future value and choose the most suitable option to achieve their financial goals.

Course Correction

If the projected returns do not align with your financial objectives, a SIP calculator allows you to make adjustments in terms of investment amounts or tenures. This helps in fine-tuning your investment strategy to achieve the desired outcome.

What are the Uses of the SIP calculator?

SIP calculators are online tools that allow you to estimate the returns on your SIP investment over a period of time. Here are five uses of SIP calculators.

Estimating Returns

One of the most common uses of SIP calculators online is to estimate the returns on your investment. You can input the amount you want to invest, the tenure of the investment, and the expected rate of return, and the calculator will provide you with an estimate of the expected returns.

Comparing Investments

Another use of SIP calculators is to compare the returns on different investments. You can input the details of different mutual funds, such as the expected rate of return and the expense ratio, and the calculator will provide you with an estimate of the returns on each investment.

Planning Investments

Finally, SIP calculators online can be used to plan your investments. You can use the calculator to determine the amount you need to invest each month to achieve your financial goals.

Choose The Right Investment

With a SIP calculator, investors can compare different investment options and choose the one that suits them best. The calculator allows users to input the investment amount and the duration of the investment and provides them with the expected returns for different investment options. This helps investors make informed decisions about their investments.

Understand The Impact of Inflation

Inflation can significantly impact the returns on investment. A SIP calculator takes into account the impact of inflation and provides investors with the real rate of return. This helps investors understand the true value of their investments and make better investment decisions.

Wrapping Up

SIP calculators can be useful for investors to plan their investments and set realistic goals. By using the calculator, investors can get an idea of the amount they need to invest and the duration of the investment required to achieve their financial goals. Overall, SIP calculators are a handy tool for investors who want to invest in mutual funds through the SIP route and want to get an idea of the returns they can expect from their investments.

    Key takeaways

  • A Systematic Investment Plan (SIP) calculator is a helpful tool for investors who want to calculate the potential returns on their mutual fund investments.
  • An online SIP calculator uses advanced algorithms to provide accurate results, considering different market scenarios and historical data.
  • When an investor opts for SIP, they agree to invest a fixed amount at regular intervals. The amount is automatically debited from the investor’s bank account and is invested in the mutual fund scheme of their choice.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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