Uses & Benefits of Mutual Fund SIP Calculator for Investors

Tools are created to make our lives easy. Be if hardware tools like a multi-bit screwdriver, pliers, flashlight, tape measure, or software tools like Linux, Dreamweaver, Azure, GitHub, all of them are designed so that they make the work easy for hardware workers and software developers, respectively. Similarly, in the mutual fund industry, specific online tools have made investment planning easy for retail investors.

One such tool is the online SIP calculator.

What is SIP?

A systematic Investment Plan, often referred to as SIP, is an investment process where retail investors can invest small, fixed sums at regular intervals. When you start investing in mutual funds via SIP, you allow a specific sum to get financed on periodic intervals (typically every month). This is probably the simplest and most convenient way of investing in mutual funds, as the only other way to support is by making a one-time lumpsum investment. Let’s say you want to build a corpus of Rs. 10 lakhs to buy a new car in the next two years. Assuming that the mutual fund scheme in which they invest offers an average return of 8%, a monthly SIP of Rs. Thirty-eight thousand five hundred sixty-one should be enough for them to achieve the desired corpus at the end of their investment horizon. And such calculations can be quickly done using an online SIP calculator.

What is a SIP calculator?

An online SIP calculator is a simple and easy-to-use tool that allows mutual fund investors to know the total assumed returns earned from their SIP investments over a certain period. This calculator is easily accessible to which any layman can use by just putting in a few details.

How does the SIP calculator work? 

The formula on which the SIP calculator is based is stated below:

M = P × ({[1 + i] n – 1} / i) × (1 + i)

Where –

• ‘M’ stands the total sum that you receive upon maturity
• ‘P’ is the sum you invest at periodic intervals
• ‘n’ represents the number of monthly SIPs you have made during your investment journey.
• ‘i’ is the periodic rate of interest

How is this helpful calculator to investors?

Here’s an example to help you understand better how the SIP calculator works:

Suppose you want to build an Rs. 30 lakhs corpus for your child’s higher studies.

You plan to build this corpus in 15 years and have started a monthly SIP of Rs. 5000 in a mutual fund with an expected 12 percent rate of return. If you put these details in the SIP calculator, it will compute and tell you that your current SIP investments will only help you accumulate a total sum of Rs. 24.98 lakhs at the end of your ten-year investment journey. This means that you will be five lakhs short of your education corpus. However, by investing Rs. 7000 you will be able to achieve your financial goal. A SIP calculator can help parents with such calculations to ensure that they invest enough for their child’s future.

An online SIP calculator can help you determine the monthly mutual fund SIP sum that one needs to invest regularly throughout the investment time horizon to achieve the education corpus for your child’s higher education.