Utilize A SIP Calculator To Plan Your Financial Future
Imagine you are going on a vacation. But you don’t have a destination planned but just a start date. Where will you book your tickets to? Even if you manage to get tickets to a decent place, how will you manage your accommodation at the last minute? Even if you do that, what will you explore without a proper plan?
Planning is inevitable in your life. It makes living simple and instils an amount of discipline.
Similarly, one of the most important keys to a successful investment is planning. Proper planning enables you to gain fruitful results. And if you are planning to invest through a SIP, a SIP calculator is the core of your plans. Read on to find out more about SIPs and how you can perfectly plan your investment in SIPs using a SIP calculator.
What is SIP?
A systematic investment plan is a tool that is used to invest in mutual funds. There are two ways in which you can invest in a mutual fund. You can either invest a lump sum amount of money or smaller instalments every month. The former requires you to have a large enough corpus. But not every investor need not have that. Many investors are turning to investment options to build a corpus from the scratch.
That is where a SIP could become extremely useful. Using SIP, you can invest a smaller amount every month to slowly yet steadily build a corpus.
What aids SIP is something called compounding. Here, the returns that your investment makes are reinvested into the corpus. Thereafter, the compounded corpus starts to earn returns. In the longer time frame, this can accelerate and help your corpus growth significantly.
But how can you calculate how much you can earn when investing through SIPs? A SIP calculator is the best tool here.
What is a SIP calculator?
A SIP calculator, as the name suggests, is a tool that helps you plan and calculate your SIP investment. There are four main elements related to SIP that help the SIP calculator work – your monthly investment amount, the average annual returns of the fund you are planning to invest in, the tenure of investment, and the corpus at the end of your investment.
Here, inputting three pieces of data gives you the ideal fourth.
For instance, if you input your desired corpus amount, the monthly sum you are willing to invest for that, and the average annual returns of the fund you have picked, the SIP calculator will tell you how long it will take for you to generate that returns.
Similarly, you can use any other variable to find the other.
If we take another instance, let us suppose you have a desired amount, tenure and know the annual returns of the fund and want to find the amount that you should invest. Here, too, you can input the three pieces of data that you know to find the fourth – the ideal instalment amount.
Are SIP calculators accurate?
SIP calculators input one piece of information that can vary according to market conditions – the returns that the fund gives. In a highly positive or negative market environment, the returns that the fund gives can change. This can cause the prediction to be false. But, in normal circumstances, since SIPs are meant for a longer period, such descriptions are sorted with time.
Either way, it is a good idea to take the information with a pinch of salt.
A SIP calculator is a highly beneficial tool to make the best out of your investment. Ensure you read the pointers above to use them correctly.