How does a SIP calculator work?

A systematic investment plan or a SIP is a popular method of investment in India. These are ideal for small investors who want to invest small amounts every month rather than investing a lump sum in mutual funds. An investor may choose to invest every week, monthly or on a quarterly basis. A fixed amount from the investor’s bank account will be invested in buying a certain number of units at the current market rate and more units will be added under an investor’s name. SIPs promote the habit of small savings and investments among small investors. A SIP investment is considered a balanced investment. More units are bought when the prices is low and fewer units are purchased since the price goes higher and therefore, cost per unit is lower than the actual cost. SIPs are generally easy to understand and use. All that an investor will be required to do is to choose one among the different mutual fund schemes which are available, and the funds will be auto-debited from the investors bank account into investment each month.

An investor can use a SIP calculator for computing the absolute value of the amount they invest after a certain time period. The investor will need to provide information on the accumulated amount, the investment period and return rates. Some of these websites also have an income tax calculator for the benefit of the investors. This will help an investor by providing them with a clear estimate of the amount they should invest depending on their total earnings accrued to them over the investment period. A SIP calculator will help them in understanding the different aspects to think of before going ahead with SIP investments.

Steps which an investor needs to follow while using a calculator are:

  1. Investors need to provide details on the monthly amount which they can invest in SIP. The minimum amount which may be invested in case of mutual funds are Rs. 500/month. For other investment schemes, minimum amount goes to around Rs. 1000.
  2. A calculator calculates the estimated returns on the basis of the return rates from particular investment schemes. To deriving the possible return rate, investors will need to analyze a figure on the fund’s track record.
  3. The last step in the process requires an investor to provide details of their tenure of investment. Minimum tenure of investment in SIP is six months, but it’s recommended that an investor invests in SIP for a long term so as to gain high returns.

A SIP return calculator is available online and they are provided by almost all the fund houses. All the investor will have to do is just log in to the website of the fund house they wish to invest in and look for a SIP calculator. These calculators are available for free on the websites. Something which a user must keep in mind while using these calculators are that the output accounted is after taking into consideration the possible rate of inflation and capital gains tax.

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