A lot of precision is required for financial planning for the future. It is much easier now with tools like the monthly SIP calculator, which can be a perfect companion for calculating the investment amount and period for whatever you wish to save. There are some calculations, like determining the required investment amount, estimating potential returns, and aligning your financial goals, which can be daunting if done manually. In that case, a SIP calculator online can help significantly in obtaining accurate calculations. This tool makes financial planning a breeze and is useful for everyone – from beginners to seasoned investors. This article will explore why this tool is essential for investors and how it can simplify the path to wealth creation.
What is a monthly SIP Calculator?
A monthly SIP calculator is a simple tool that enables individuals to estimate the returns on their Systematic Investment Plans (SIP). The tool also helps one get an approximate estimate for monthly SIP based on the projected annual return rate.
How does a monthly SIP Calculator work?
The SIP calculator works on a formula given below:
FV = P [ (1+i)^n-1 ] * (1+i)/i
Where,
- FV = Future Value or the Amount you get at maturity
- P = Amount you invest through SIP
- i = Compounded rate of return
- n = Investment duration in months
An example below will make it simpler to understand how SIP calculators work:
Example of a monthly SIP Calculator
Ravi is 30 years old and works as an investor. He is thinking about how he can invest money for retirement purposes. So, Ravi decides to invest money in a mutual fund product via a systematic investment plan.
- Investment amount: ₹35,000 per month
- Investment period: 30 years
- Expected interest rate: 8% per annum
- Frequency of investments: Monthly
The result of the SIP calculator using the formula would show the following:
- Future Value of the investment: ₹5,25,10,331
- Total Investment: ₹1,26,00,000 (35,000 * 12 * 30)
- Potential Returns: ₹3,99,10,331 (Future Value – Total Investment)
How to use a monthly SIP calculator?
Below is a step-by-step guide on how to use a SIP calculator:
Step 1: Key in the monthly amount you wish to invest.
Step 2: Select the duration of your investment and expected returns.
Step 3—After entering these inputs, the SIP calculator will display your invested amount, its future value, and your returns for that chosen period.
Step 4: To see the SIP amount that suits your investment goals, you can change the amount you plan to invest every month or the duration you plan to invest.
What are the benefits of using a monthly SIP Calculator?
SIP calculators offer investors a few advantages. Some of them are discussed below:
- Faster and more accurate investment future value: SIP calculator gives immediate and precise results, sparing you from complex calculations.
- User-Friendly Interface: One can easily estimate investment needs with a SIP calculator, which is suitable for anyone.
- Informed Investment Preferences: Helps planning investments effectively with the SIP calculator to meet financial goals effortlessly.
- Map Investment Opportunities: Some calculators predict future values and investments and even recommend funds to align with your financial goals.
- Inflation-adjusted Results: Some of the SIP calculators have the feature of inflation adjustment that helps one calculate effectively.
Are there any disadvantages to using a SIP Calculator?
Though SIP calculators offer investors several advantages, there are also a few disadvantages. Key points about the limitations of the SIP calculator are:
- Market volatility: SIP calculators normally assume a constant rate of return, so realistic market fluctuations are not reflected.
- Inflation and taxes: Many SIP calculators do not factor in inflation and tax implications, which can affect real returns.
- Fund selection: The calculator reflects on the chosen mutual fund’s performance, so selecting the wrong fund can lead to inaccurate projections.
- Simplistic nature: When a SIP calculator is oversimplified, it may not apply to complex investment strategies or potential changes in your financial situation.
Conclusion
A monthly SIP calculator can help you plan your investment effectively to reach your financial goals. However, investors need to check with their financial advisor before undertaking SIP investments and not solely depend on SIP calculators, as all these returns are indicative and are based on assumptions.
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