An SIP (systematic investment plan) offers an easy, efficient way to invest in mutual funds and fulfil different financial goals. It eliminates the need to time the market, facilitates small investment amounts, and encourages financial discipline by automatically deducting funds from your bank account and investing the same regularly. However, it is also important to know what returns you are making with your SIP investment.
The rate of return is a measure of an investment’s profitability over time. It is calculated as the percentage change between the initial investment amount and its future value. When evaluating an investment’s performance over time, it is important to consider not only the initial amount invested but also any additional contributions made throughout the life of the investment. This is where an SIP calculator comes in handy.
What is an SIP calculator? How does it calculate the rate of return?
An SIP calculator is an online tool used to calculate the expected rate of return on investments made through a systematic investment plan (SIP). This calculator takes into account factors such as the amount being invested, investment timeframe, and expected return rate. Based on these factors, it then estimates SIP returns.
For example, let’s say you choose to invest in an SIP with an initial investment of Rs 10,000 for 10 years at 12% returns per annum. After 10 years, your total investment amount would be Rs 24 lakhs, approximately earning more than twice the initial invested value over 10 years.
Factors influencing your rate of return
The exact rate of return on your investments will vary depending on several factors, such as types of mutual funds you invest in and the duration of your holdings. Generally, an SIP calculator can give you an idea of what kind of returns to expect by taking into account current market conditions and interest rates.
For example, if the current market conditions favour growth stocks, then investing in such stocks could result in higher returns than if the market favoured value stocks. Also, holding onto an investment for longer periods can potentially lead to higher returns compared to shorter durations due to compounding interest over time.
Aside from this, different types of funds may have different rates of return based on risk levels, fund objectives, and more. So it’s important to research different options before selecting one for your investment portfolio.
Why to use an SIP calculator before you invest in mutual funds?
An SIP calculator can greatly assist in your investing decision-making process and allow you to evaluate options with greater clarity. The calculator gives you an idea about how various investments will perform with different risk levels and different amounts invested regularly.
You can even make a comparison of stocks versus bonds and see which one offers higher potential returns at lower risk levels. This gives you more control over your investments, and you can decide how much you should invest, when you should invest, and how long you should hold onto the investments for maximum gains. Such flexibility further helps you manage your budget better and reach your goals without overextending your finances.
Final words
Investment in mutual funds via an SIP can significantly help you grow your savings over time and ensure financial stability. And using a SIP calculator further simplifies the task of calculating the rate of return on your investment, allowing you to make an informed decision that can be beneficial to your financial goals.
You can easily find the calculator online and use it for free on the websites of banks and other mutual fund providers. However, it is important to remember that adding incorrect details may result in inaccurate assessment, so make sure all information is accurate for reliable results.
