Are you considering investing your money but somewhat perplexed with all the finance jargon? Fear not. Most individuals desire to increase their savings but get scared by complicated calculations. That is where a SIP Calculator is helpful – it is like your trusted guide in the investment world, simplifying things for you.
What is a SIP Calculator and how does it works?
Now, before we head into the calculator, let us understand the meaning of the word "SIP" quickly. The term SIP means Systematic Investment Plan. Suppose you wish to save money for a large purpose, such as purchasing a new house or property, or purchasing a new Smartphone, saving for your child's education, or even your retirement. Rather than investing a lot of money at one time, a SIP allows you to invest a pre-decided, small amount regularly, typically each month.
Imagine it as scheduling an automatic payment for your electricity bill, but instead of paying a bill, you are investing money. This disciplined investment strategy holds a secret superpower: compounding. What that means is the money you invest earns a return, and the return also begins to earn a return, like a snowball rolling down a hill and growing larger.
Now Comes To What is a SIP Calculator?
Put simply, SIP Calculator is an online gadget that assists you in calculating how much of your SIP investments you could possibly earn back. It is a little useful tool that asks for a bit of straightforward information from you and then displays an approximate future value of your money.
No sophisticated math or spreadsheets required. It is kept very simple to use, even if you have no experience of investing.
How Does a SIP Calculator Work?
Consider the SIP Calculator to be a clever assistant that requires three important inputs from you:
How much would you like to invest every month? (Your Monthly SIP Amount)
This is the fixed amount you intend to invest in your SIP each month. Rs.1,000, Rs.5,000, or Rs.10,000, for instance.
For how long do you intend to invest? (This is Your Investment Period/Tenure)
This is how many years or months you wish to keep your SIP running. Are you saving up for 5 years, 10 years, or even 20 years? The more, the better, typically.
What is the expected return on your investment? (Expected Rate of Return)
Now, this is where it gets a little tricky, but the calculator still makes it easy. Unlike fixed deposits, mutual funds (where most SIPs are done) do not have a guaranteed return. Their returns depend on how the market performs.
But according to the way similar investments have done in the past, you can enter an "expected" rate of return. For instance, 10% or 12% per annum. Important Note: This is an approximation only, and real returns may be more or less.
After you input these three figures into the calculator, it performs magic.
It applies a secret formula (you do not have to know it, that is why you use a calculator) that considers compounding power. It then rapidly informs you:
Your Total Investment: This is the actual amount of money you really invested over the years.
Your Estimated Wealth/Maturity Value: This is the much larger sum you might have at the end of your investment horizon, courtesy of those returns accumulating on one another.
The Wealth Accumulated (or Returns): This is the additional money you made above and beyond what you initially invested.
Let us consider a speedy example:
Let's say you choose to invest ₹2,000 per month over 10 years, and you expect a return of 12% every year.
You plug these figures into the SIP Calculator, and it may give you something like this:
Total Money You Invested: ₹2,000/month × 12 months/year × 10 years = ₹2,40,000
Estimated Value at the End: Approximately ₹4,64,688 (This is just an example; exact values will be slightly different by calculator)
Wealth Gained (Your Profit): Approximately ₹2,24,688
Notice how your initial investment of ₹2.4 Lakhs almost doubled? That is the magic of SIPs and compounding, beautifully demonstrated by the calculator.
Let us take one another example with formula -
SIP Calculators Use The Compound Interest Formula:
That is - FV = P × [(1 + r)^n - 1] × (1 + r) / r
FV = Future Value
P = SIP amount (monthly)
r = Expected monthly return (annual rate ÷ 12 ÷ 100)
n = Total number of SIPs (months)
Example:
Monthly SIP: ₹5,000
Duration: 10 years (120 months)
Expected Return: 12% annually (1% monthly)
👉 Final Value = ₹11.6+ lakhs
Why Use a SIP Calculator?
💚 Visualize Your Future Money: It provides you with a clear idea of how your tiny, periodic investments turn into a lump sum after a while. How motivational is that!
💚 Plan for Goals: Need to save for a housing down payment, your child's college education, or a cozy retirement? A SIP calculator assists you in determining how much you must invest each month to achieve those very goals.
💚 Experiment Simply: You can experiment with varying monthly amounts, varying investment periods, and varying expected returns to determine what suits your budget and objectives best. It's playing with figures without any risk!
💚 Make Intelligent Decisions: By viewing possible outcomes, you are better able to make wise decisions regarding your investments.
💚 Saves Time and Energy: No more going through complicated calculations – the calculator does all the grunt work on your behalf within seconds.
💚 It is Free and Online: All SIP calculators, including the one on our Mudra Calculator website, are free, anytime, anywhere.
“Try our free SIP Calculator to estimate your returns.”
To summarize, a SIP Calculator is a straightforward, yet efficacious tool that breaks the mystery of investing. It helps everyday individuals like you to see your financial future and make confident moves towards your aspirations. Try it out on our website and check out the potential of your money.
