The modern workforce comprises of a huge proportion of millennial professionals, who often lack informed perspectives on financial management. Further, the financial market as we know it continues to evolve rather rapidly.
It is fairly challenging to know all the market trends, economic indicators, and their implications. The results? People simply don’t know where and how much to invest.
There are a plethora of investing options, each with its pros and cons. One such very popular investing option is mutual funds. But while they do come with their own set of aspects to understand, the process is simplified to a great extent, thanks to SIPs.
A Systematic Investment Plan, commonly known as SIP, is an investment option wherein the investor can invest their money in a mutual fund scheme of their choice, at regular intervals of their choosing.
The amount invested in this case is fixed beforehand and is systematically deducted from their account, to be routed directly to their chosen mutual fund.
Why Invest In SIP?
There are several reasons why the SIP is preferred over other instruments for investment. Some of the popular reasons are:
1. Lesser risk
No matter how the market is faring, the amount that you invest will remain fixed. Therefore, the overall risk in investing in SIP is much lesser.
2. Principle of compounding
As a mathematical rule, small amounts invested over a long period of time yield larger return in comparison to a one-time investment.
3. Minuscule amount as an investment
A person can start investing in SIP with as low as Rs. 500 which does not really affect one’s liquidity and ability to carry on day-to-day activities and yet it proves to be a sound way of investing.
4. Tiding over contingencies
With the option of a one-click withdrawal being offered in SIP, it can be used in cases of a medical emergency, accidents etc to tide over immediate and unforeseen expenses.
5. Easier and more systematic
Since the investor puts money aside at a regular interval, it inculcates the habit of saving in the person.
Further, since the funds are automatically transferred from one’s account on a fixed date, one need not constantly worry about having to go through the hassle of manually transferring funds every month or every fortnight, making it the perfect option for people who are always working on a busy schedule.
Having evaluated why investing in SIP is a good choice in today’s time, what needs to be understood is the fact that the financial world can be very confusing and investing can be a very daunting task for newbies like us.
But a question remains – how do you pick your mutual fund? And what returns can you expect from your SIP? In order to make the decision of investing a little simpler for us, a SIP Calculator is something that comes to our rescue.
How A SIP Calculator Works
A SIP calculator is an automated tool that does all your investment math for you. It helps calculate your expected returns and wealth gain from investing in a particular mutual fund for a specified time period.
A SIP Calculator gives you the return on SIP based on the principle of compound interest. The underlying formula behind it is:
FV = P × ((1 + i) n – 1) / i) × (1 + i)
- FV represents Future Value
- P for the sum you contribute towards the start of each payment interval,
- n for the total count of payments,
- I for periodic interest rate,
- r for the expected rate of return in % each year.
Instead of painstakingly doing all the calculations manually, all that you have to do with a SIP calculator is decide the amount that you wish to invest every month, the period for which you want to invest, and the returns you expect.
Not only does it instantaneously tell you the gains you’d generate, but it also allows you to modify any of the variables to effortless see how they impact your overall returns.
As a result, you’re able to quickly compare returns between SIPs and other investment options as well – such as an FD.
How A SIP Calculator helps you in deciding how to invest?
A SIP calculator helps investors make informed decisions, by predicting the amount of return that the person may get after he/she specifies his/her desired amount and period of investment. The result is a more realistic picture for investors.
Further, a SIP calculator can also help decide how much should you save in order to meet your long term financial goals – like buying a house, funding your child’s education etc. Again, you don’t need to do manual math here.
Mobikwik’s SIP calculator features a reverse calculator tool – where you can enter your expected return, and a suitable SIP amount will be worked out for you.
In contrast to a lump-sum investment, a different number of units in a mutual fund are acquired in every SIP period.
Therefore, the calculator is effectively taking into account the market fluctuations that you may have factored in when feeding in the annual returns you expect.
General market consensus has always regarded a SIP as a stable investment, especially for young professionals. It delivers consistent results over the long term. However, it is critical that one makes an informed decision before making any investments.
Avoid heading into the financial market with a blind eye and always research what kind of SIP suits your financial position and needs. A reliable SIP calculator is always available for your assistance at these points.