Investing in mutual funds through the Systematic Investment Plan (SIP) mode is popular. Currently, India has about 5.84 crore SIP accounts through which investors invest regularly in a range of mutual fund schemes to meet different financial goals. When you opt for an SIP investment, you invest a fixed amount of money regularly in a mutual fund scheme of your choice over a period. And by using an SIP calculator, you can decide how much your SIP amount should be and for how long you should invest to meet a specific goal. Wondering how that is? Let’s find out.
Using an SIP calculator
SIP investments work best when they are linked to a goal. Think of a financial goal you have. It can be anything from renovating your home to building a retirement corpus. Now, think of the approximate amount you need to meet that goal. Next, think of the timeline in which you want to meet that goal.
Let’s say your goal is to save for your child’s college education and you want to save about Rs 30 lakh over the next 10 years. Now that you have narrowed down your goal and its details and know that you want to invest in an equity mutual fund through an SIP, what you need to figure out is how much you need to invest each month to meet this goal. Here is where an SIP calculator comes in handy.
An SIP calculator is an online tool that helps you assess how much money you need to begin investing through an SIP to meet your goals in the desired timeline. It’s simple to use and gives you results within a few seconds. You simply need to enter the amount you want to save, the time in which you want to save it, and the approximate returns of the mutual fund you are going to invest in.
Considering the long-term returns on an equity mutual fund to be 12% and taking into account the above example, you would have to invest Rs 13,041 to have Rs 30 lakh saved at the end of the 10-year period. In case you want to amass this money in a lesser time period, say five years, the SIP calculator will show you how much more money you need to save in this case. In this way, you can change the goal amount and the time period to arrive at an SIP amount that is affordable for you to invest in regularly.
SIP investments allow you to invest small amounts regularly to build a sizeable corpus over time to help meet various financial goals. You also don’t need to time the market as SIP investments apply the strategy of rupee cost averaging that hedges market volatility and averages out the cost of your investment. Using an SIP calculator before you invest in SIPs allows you to map out your investment strategy. It allows you to calculate your returns, see how long you need to invest for, and how much you need to invest. Hence, an SIP calculator should be a part of your investment planning right from the beginning.