With mutual funds being one of the most popular sources of investment in this decade, SIP and its related fundamentals have been making a lot of buzz among financial investors. Let’s say you have sold a car to him but he cannot afford to pay you the whole deposit in one go, so he pays you 10k every month at an interest rate. SIP somehow works on the same principle. This allows you to invest in a scheme or fund with a small amount of money at regular periods.
Now technically stated, SIP or Systematic Investment Plan is an investment method where real-time investors can invest in a scheme like a mutual fund at regular intervals at a fixed interest rate. This enables the retail investors to park their money in their desired scheme for a long time. Without having to pay a large sum at one station and earn a substantial return.
Types of SIP Calculators:
Let us now look at different types of SIP Calculators with which you can start your investment journey at a low cost and with less risk of market volatility:
- Top-Up SIP: This helps an investor to accumulate a huge corpus by investing at regular intervals.An investor can increase the amount invested as per his own convenience and deal in the best funds available in the market by using the cost-averaging method.
- Perpetual SIP: In this type of SIP method, an investor can invest periodically for a fixed predetermined tenure. While signing up for an SIP mandate an investor can choose to keep the end date as blank, this shall fall under the perpetual SIP method then.
- Flexible SIP: This is a type of SIP where an investor can use the leverage of increasing and decreasing the amount of SIP intervals. He can also choose to skip SIP for a month or two when he does not desire to invest as per this method.
- Trigger SIP: This method is sustainable for those real-time investors who are cognizant of the market volatility. One must choose this method only if he has a proper market understanding. In this option an investor can set an index level event, NAV or even a specific date to initiate his SIP.
How to Calculate SIPs
SIP can be calculated in two ways: By using a derived formula or an online SIP calculator.
- By using the formula SIP returns can be calculated as follows:
FV = P [ (1+i)^n-1 ] * (1+i)/i
In the above formula:
FV = The final value or the maturity amount
P = Principal amount invested through an SIP.
n = No of months of investment period
i = The compounded rate of return.
r =The expected rate of return.
Now let us understand the above formula with an illustration to obtain a better idea:
Lets say X invested Rs 2,000 per month for a tenure of 24 months. \
He expects a 12% p.a. rate of return (r).
Now we have i = r/100/12 or 0.01.
Also, FV = 2000 * [(1+0.01) ^24 – 1] * (1+0.01)/0.01
Thus we get a maturity amount of Rs 54,486.
- Online SIP Calculators
Calculating SIP returns manually can be a tricky and a time-consuming process. Therefore you can opt for an easy solution you can use an online SIP calculator to estimate your maturity amount in seconds. Click here to use an SIP calculator now.
SIP is a simple way to onboard your investing journey. It not only gives you the liberty to initiate your investments early and at your own convenient amount but also helps you to achieve a sense of financial freedom with less cost and safer returns.
