As people move towards the habit of savings, a systematic investment plan has become one of the most preferred options by many investors because of its averaging method. Individuals often use mutual fund calculator to analyse their investments. SIP mutual fund calculator is a tool, which enables individuals to get an estimate of the return on their mutual fund investments through SIP. Here are some frequently asked questions about the mutual fund calculator.:
Q1. What is SIP?
A1. SIP stands for Systematic Investment Plan in which a fixed amount is subtracted from the investor’s income towards a mutual fund regularly (monthly, quarterly, or weekly)
SIP, with its vast range of benefits, provides the most disciplined approach towards investments and helps. Once the investor decides the amount he wants to invest periodically, that amount gets deducted from his bank account and is invested in the selected mutual funds.
Q2. What are the types of SIPs available?
A2. There are 4 types of SIPs in the market:
Top-up SIP: Investors can increase the monetary amount of instalments by a fixed amount periodically
Perpetual SIP: These SIPs do not have a fixed investment period and they exist until cancelled. This is recommended for long term investors
Flexi SIP: The amount of the instalment can be altered according to a prespecified formula. The investors can invest a lower amount when the market is high and vice versa.
Trigger SIP: Investors can redeem half or full amount after a point They can also shift their investment in a separate scheme automatically after the predefined trigger point.
Q3. What is a SIP calculator?
A3. A SIP calculator helps the investors estimate the returns that they may earn through their investments in SIP. This tool works on the data input provided by the investors such as the investment horizon, the amount one can invest after meeting their expenditures, etc. It presents an estimate of the wealth that can be gained on the investments and the maturity amount. However, one must remember that the returns provided by the calculator are not actual figures but just an estimation. Actual returns may differ depending on the mutual fund’s performance. The actual returns can either be lower or higher than the estimate provided by the calculator since this estimate is based on the current performance of the mutual fund.
Q4. How does the SIP calculator work?
A4. Investors enter the amount to be invested, the time for which they want to stay invested, and their expected returns on the SIP. The mutual fund calculator estimates the maturity amount and the expected wealth that can be earned on the investment. The returns are calculated as per compounded interest as per the number of times the compounding is applicable. Another benefit if this calculator is that the potential investors can enter the amount they wish to earn as per their financial goals and get the monthly instalments they should invest periodically.
Q5. How is SIP return calculated?
A5. There are several ways to calculate the returns on a SIP. Some of these methods are absolute returns, annualized return, XIRR, CAGR. The most popular and effective method to calculate the returns is the CAGR or the compounded annual growth rate method if the time horizon is more than a year.
The formula for CAGR: CAGR = (ending value of the investment/beginning value of the investment)^(1/number of years or months of investments)-1*100
Here are a few examples to understand the method:
Suppose an investor puts INR 1,00,000 in a mutual fund 2 years ago when the NAV was INR 50. The fund has grown over the years and the current NAV is INR 60. Then,
(60/50)^(½)*100 = 9.54%
Q6. What are the benefits of SIP mutual fund calculator?
A6. An online SIP calculator provides several benefits. Some of these advantages are listed below:
It aids investors in planning their investments based efficiently based on the amount and investment tenure
It helps in computing the estimated wealth and the total amount of the investment at the end of the tenure
It helps investors save time that manual calculations would require along with providing accurate results
This mutual fund calculator also ensures that the savings portfolio is as per investor’s financial requirements.
Q7. How much can be invested in a SIP?
A7. Starting from INR 500, investors can invest any amount they wish in a SIP. This makes SIP accessible even to those people who cannot afford to keep aside hefty amounts periodically as savings.
Q8. Can the SIP amount be modified?
A8. Yes, investors can check the returns on their SIPs anytime and the amount can be increased or decreased accordingly.
Q9. Can a SIP be renewed?
A9. SIPs are renewed automatically. Also, various organizations provide the investors to opt-out of this auto-renewal system.
Q10. Can investors pause their investments?
A10. Yes, SIP and mutual fund institutions provide the investors with the facility to pause their investments for a specified period. This facility is hugely favoured by the investors as it provides the option to hold on their investments in times of crisis or meet any unforeseen expenses.