An SIP calculator is a tool that helps you estimate the returns from your systematic investment plan (SIP) in mutual funds. It takes into account factors such as the amount you invest each month, the expected rate of return, the period of your SIP, and the corpus or final amount you need. You can use an SIP mutual fund calculator to plan your investments better and unleash the power of compounding to achieve your life goals. Read on to find out more.
The magic of compounding
Through the power of compounding, a small sum of money invested regularly over a long period of time can grow into a large amount. This is why starting an SIP or systematic investment plan in mutual funds at an early age can create wealth in the long run. An SIP allows you to invest fixed amounts in a mutual fund scheme regularly. Using an SIP calculator, you can estimate how much wealth you can create over the long-term by starting an SIP.
Understanding SIP calculators
An SIP calculator is an easy-to-use tool available online that helps you estimate your returns from an SIP. You need to provide inputs like the amount you want to invest each month, the expected rate of return, the period of your SIP, and the corpus or final amount you need. The calculator will tell you how much you need to invest each month to achieve your goal. It will also show you how your wealth will grow over the years through charts and tables.
Starting early pays off
The sooner you start an SIP, the greater will be the power of compounding. For example, assuming an annual return of 12%, if you start an SIP of ₹5,000 at the age of 25, it can grow to nearly ₹27 lakh in 35 years at the age of 60. However, if you start the SIP at the age of 35, the same ₹5,000 SIP may grow to only about ₹14 lakh in 25 years. The additional 10 years made a huge difference thanks to compounding.
Increase your SIP amount periodically
Use an mutual fund calculator to see how increasing your SIP amount by a fixed percentage each year can boost your returns. For example, if you start an SIP of ₹5,000 at the age of 25 and increase it by 10% each year, it can grow to over ₹1 crore in 35 years. The increase in SIP amount each year, along with the power of compounding over the long term, can accelerate your wealth creation.
Change returns and SIP tenure
An SIP calculator allows you to estimate your wealth for different rates of return as well as different SIP tenures. You can see how increasing or decreasing the returns or tenure impacts your final corpus. For example, you will need a higher monthly SIP amount to achieve the same target corpus in 25 years instead of 35 years, given the same return expectations. Playing around with the variables on the SIP calculator helps make the right investment choice.
Conclusion
An SIP mutual fund calculator is a useful tool that can help you plan your investments better and unleash the power of compounding to achieve your life goals. Use it to start investing early, increase your SIP amounts periodically and stay invested for the long term to create wealth.