Mutual Fund SIP Calculator
What Is a Mutual Fund SIP Calculator?
If you’re new to Mutual Fund investing, the first question that you’ll ask is whether you should invest a lump sum or start a SIP (Systematic Investment Plan). If you decide on a latter, a Mutual Fund SIP Calculator can be extremely helpful. A Mutual Fund SIP calculator is a simple, easy to use tool that can help you plan for your financial goals with the assistance of a Financial Advisor. By allowing you to dynamically tweak various parameters such as CAGR, amount, tenure and step up, a Mutual Fund SIP calculator can help you create multiple hypothetical scenarios that you can use to achieve your financial goals, and eventually start with a plan that works best for you! Basically, a Mutual Fund SIP calculator allows you to create a customized goal based financial plan around your systematic investments.
How Are SIP Returns Calculated ?
Many people who use a SIP calculator end up confused about how SIP returns are calculated in the first place! For example, your SIP calculator may be showing that by investing Rs. 10,000 a month for a year, you will end up with roughly 1.26 Lakhs at a 12% return. However, when you divide the profit (Rs. 6,000) by the principal (Rs. 1.2 Lakhs), the numbers don’t quite add up! Is the SIP calculator inaccurate? In fact, it’s 100% accurate! The correct method of assessing returns from your SIP Calculator would be to consider the CAGR (Compound Annualized Growth rate) of each Mutual Fund SIP tranche in isolation, and then calculate the weighted average of these returns. Except - since a SIP Calculator considers equal-sized instalments, a weighted average calculation wouldn’t really be necessary – a simple average would suffice! In the above case, we will take the weighted average of the annualized returns earned on each SIP tranche of Rs. 10,000 – which would give you 12%! In doing so, you’ll be taking into account the fact that each tranche in the SIP calculator is, in effect, a different investment. By calculating the CAGR for each tranche, you’ll be condensing each tranche to a singular frame of reference, thereby eliminating the impact of the fact that each SIP instalment has a different investment time period.
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Why Use a SIP Calculator?
Let us understand the importance of a SIP Calculator with a simple example. Rajat, a 30-year-old, decides to plan for his financial goals with the help of a Financial Advisor. He discovers that he requires a minimum of Rs. 5 Crores in 30 years’ time, in order to lead a comfortable post retirement life. Rajat’s monthly surplus is just Rs. 5,000 and he has never looked beyond fixed deposits, so the prospect of saving Rs. 5 Crores seems almost impossible for him – until, that is, he comes across the FinEdge SIP Calculator! By increasing the target return in the SIP Calculator from 6% to 12%, Rajat discovers that his final corpus more than triples from 50 lakhs to 1.76 Crores. However, that’s still a huge shortfall from his target! Now Rajat factors in an annual step up of Rs. 1,000 and also increases the target return in the SIP Calculator to 13%, meaning that he would have to invest in more aggressive Mutual Fund SIP’s such as Small Cap or Mid Cap Funds. Now, the SIP Calculator shows a projected corpus of Rs. 5.1 Crores! Rajat is relieved. As you can see, a SIP Calculator helped Rajat decide on a concrete investment plan for his retirement.
What Is Step Up In SIP Calculator…How Does It Help You?
Most SIP Calculators assume a static scenario that involves investing a fixed sum of money every month for several years. This can result in misleading outcomes! After all, your income is bound to go up year on year, and so is your disposable surplus. If you have planned your cash flows smartly with the help of an investment advisor, it’s quite likely that you will be able to step up your SIP’s every year. This is exactly where a step-up SIP Calculator comes in handy! By allowing you to visualize outcomes based on a fixed amount or percentage step up every year, a step-up SIP Calculator provides you with a much more accurate number when it comes to your projected goal achievement. A step-up SIP calculator can prove especially efficient when planning for long term goals, in which even minor adjustments in the investment parameters can have a dramatic impact on the final corpus projection. The best part is that at FinEdge, our technology allows you to build in automatic step ups into your financial plan right at the beginning; so that you don’t have to do it manually every year. This results in tremendous peace of mind with respect to your financial goals.
SIP Calculator FAQs
Is the Finedge SIP Calculator Easy To Use?
Our SIP Calculator is super easy to use! Simply drag the interactive sliders to game various scenarios involving your monthly investment amount, target return or even annual step up – and view the outcome instantly.
How Is “CAGR” Calculated For a SIP Investment?
Every tranche in the SIP Calculator is considered as a “new” investment with its own distinct CAGR. After that, a simple average of all these CAGR’s is taken to arrive at the CAGR for your SIP investment.
What Is “Tenure Of Investment (Years)” In SIP Calculator?
The tenure in the SIP calculator is the number of years remaining for your financial goal – which should be the number of years that you intend to run your SIP investment for.
What Is “Annual Step Up” In SIP Calculator?
Mutual Fund investments are fantastic for financial planning! Because of their versatility, they are the ideal solution for constructing a goal-based investment portfolio. SIP’s (Systematic Investment Plans) allow investors to gradually and steadily create wealth for their goals over time.
Are Mutual Funds Safe?
The “Annual Step Up” in the SIP Calculator allows you to visualize an ending amount based on a percentage or absolute annual increase in your SIP from today, until your goal achievement date. Step Up SIP Calculators can be extremely useful for planning for long term, high value goals such as your retirement.
What Is “Monthly Investment Amount” In SIP Calculator?
Simple! It’s the amount of money that you intend to start saving every month, if you were to execute your financial plan today.
What Is the Main Benefit of SIP Investing?
SIP investing is flexible and easy on the pocket. It allows you to start small and benefit from the power of compounding over time. Besides, SIP investing also mitigates risks associated with equity investing, through a mechanism known as rupee cost averaging.
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