Systematic Investment Plan or SIP is among the most popular routes to invest in lucrative mutual fund investment options. The route has gained popularity owing to its investor-friendly traits and associated benefits along with the power of compounding that helps grow the invested amount. Notably, SIP enables individuals to develop a disciplined and regular approach towards investment. However, the same can help reap multiple benefits only if they plan their investments through SIP properly while keeping their goals in mind. 

While Systematic Investment Plans have emerged as a favorite when investing in mutual funds, their true magic lies in how investors are capable of smart planning. That said, to understand how exactly SIP helps individuals reach their financial goals and build a corpus for their future they can use the SIP calculator. Such a tool not only helps understand how one’s investment will generate returns but also offers a better understanding of how various factors impact the same. This insight allows individuals to plan their investments through the SIP route better and maximize the following benefits. 

Of course, individuals have the option to compute their returns on investment manually. However, such a process is tedious and very likely to be prone to mistakes. 

These problems can be avoided by simply using an online SIP calculator. Besides offering a quick and accurate estimate of returns, it will empower individuals to make informed decisions. 

Let’s explore how an online SIP calculator impacts investment and more.

What is an online SIP Calculator?

An online SIP calculator is designed to help individuals ascertain the returns they could generate on their investment if they route it through SIP. The investment tools factor in the investment amount, interest rate, investment horizon, and frequency of compounding to determine the returns. The tool is preloaded with the SIP formula to calculate returns on mutual fund investments within a couple of seconds of entering details into the tool. The SIP calculator can be accessed online after a quick search and used to compute returns for free. Today, several financial institutions make investment calculators available to users on their websites. 

What is the SIP Calculator Formula?

Typically, an online SIP calculator comes preloaded with the following formula to help determine the user’s earnings on their mutual fund investments through SIP –

FV = P [ (1+i)^n-1 ] * (1+i)/iFV

In the above-mentioned formula 

FV stands for the potential future value

P stands for the investment or principal amount

i stands for the compounding rate of interest

n stands for the tenure in months

r stands  for the expected interest rate

Example of Systematic Investment Plan Calculation

Suppose Ridhi wants to invest in mutual funds to build a corpus in 24 months. To build the corpus he decides to invest Rs. 2000 via the SIP route every month. From the investment route, he aims to generate a return of 12% on the same investment annually.

According to the SIP formula –

FV = P [ (1+i) ^n-1] * (1+i)/iFV

FV = 2000 * [(1+0.01) ^24 – 1] * (1+0.01)/0.01

It should be noted that the compounded interest in this example is 0.01 

i.e. (i = r/100/12)

Hence, by the end of the investment horizon, the returns earned via the SIP route would be Rs. 54,486.

Notably, the manual process involves several steps, making them prone to silly errors. This compromises the accuracy of the outcome, in turn, hampering the financing planning. Additionally, the manual process could be smoother. 

However, fortunately, an individual can avoid the hassles by using an online SIP calculator and avail of accurate results every time within seconds. 

How to Use an SIP Calculator?

Following a few simple steps, individuals can access a SIP investment calculator for free and simplify the calculation process. This helps the user plan their finances effectively and helps them understand how much corpus they can build besides their life cover to support themselves or their family.

Step 1: Look for a reliable website with an online SIP calculator. 

Step 2: Open the SIP calculator page.

Step 3: Provide all the investment details in the designated fields. 

Step 5: Enter the frequency of investment, i.e., annually, semi-annually, quarterly, or monthly. 

After you follow the above-mentioned steps, the investment tools will display the results on the calculator instantly. The best thing about this tool is that it offers a complete breakdown of the returns, the final amount, and more. 

Similarly, the tool allows the users to readjust the inputs multiple times for free. This helps the users understand the returns and different combinations of investment amount and tenure will work the best for them and allow them to achieve their financial goals. However, to make the most of it, it is first recommended that individuals identify their personal goals and requirements. This way they will be able to understand whether the returns on their investments would suffice their needs or not.

How to Maximize Returns on Investment via SIP?

Individuals can boost their SIP returns by allowing the users to maximize their investments and enhance their approach. 

•  Increase the investment amount to park into the mutual funds through the SIP route.

• Choose a longer investment horizon to maximize the perks of the Power of Compounding feature. 

•  Stay invested in the SIP route for a long time to help returns multiply.

• Put the money in high-earning mutual fund options to help build a substantial corpus.

• Determine which compounding frequency would work best in your interest and help achieve financial goals.

These tips can help individuals plan their investments through the SIP route more effectively. However, it is recommended that individuals invest in mutual funds as per their financial capacity and risk-taking capacity.

This is because investing money more than one can actually afford tends to add to their unnecessary burden, defeating the ultimate purpose of generating wealth. 

That makes it crucial to keep in mind one’s risk appetite so they can ensure their hard-earned money is safe and can multiply over the long run.