Given the dynamism in the field of finance and investment, people and companies are keen to embrace methods that may help them overcome all the laid down challenges in investing. Investors across the globe use several tools, one of them being the SIP calculator. In this way, since SIP calculators are based on technology and given that it provides an entertaining way to know investment planning. There are several benefits of using a SIP calculator that investors can utilize.
In this article, we will explore the definition of SIP calculator, its key benefits, as well as how to use them proficiently.
What is a SIP Calculator?
SIP calculator is an online financial application, which allows users to invest their money methodically. This is how the future value of money which is placed in a systematic investment plan or known as pound cost averaging are determined through investment of a fixed amount of money at fixed regular intervals over a given period of time. With specific respect to the parameters like the amount invested every month, the expected rate of return, and the investment period a SIP calculator can assist the users in predicting the amount of potential return that may be earned on their investments.
How Does a SIP Calculator Work?
The basic functioning of a SIP calculator is on different formulas that take into consideration parameters like; amount invested, number of installments, expected percentage return and duration. Here’s a step-by-step guide on how a SIP calculator works:
- Enter investment details: The first data required in any SIP calculator is the investment amount or the fixed amount an investor intends to make periodically.
- Select frequency: Secondly, it is to decide the type of frequency therein invested, whether monthly, quarterly, biannually or annually.
- Input expected returns: the third step is providing the expected rate of return number. This is a forecast of the return the investor expects to make from the mutual fund they have invested in.
- Specify the tenure: Finally, enter the required investment frequency that defines the period of time for which you are planning to invest periodically.
After the inputs are given, the SIP calculator produces an outcome, that is the expected value of the investment after the required period of time. Based on the given data, this calculator takes the compounding factor which is important to the SIP investment.
Also Read – 10 Reasons Why SIP Investments are Perfect for Investors
Advantages of using a SIP Calculator
A SIP calculator benefits the investor by providing realistic predictions, convenience, focus on achieving investors’ goals and minimization of financial risks. Let’s understand all advantages in detail.
1. Accurate Financial Planning
The foremost advantage of using a SIP calculator is that it helps in creating a realistic financial plan. With help of the calculation of potential revenue with the investment, users can provide proper assessment of their further investment decision, as well as the preparation of the specified visualization of financial objectives to be accomplished. Investment professionals can use a SIP calculator to determine potential investment plans that will enable them to meet their financial goal within their allowable risk levels.
2. Time-Saving and Convenient
Purchasing in mutual funds or other related products is one which may take a lot of time. Looking at the SIP calculator, the users are able to avoid getting stranded as they get to know the right investment plans and investment amount at regular intervals. Besides, these calculators are highly available online, and investors can make use of a SIP calculator at their own convenient time and location.
3. Goal-Oriented Approach
SIP calculators also have a goal-based structure to invest planning. Users can input the required amount of investment and the necessary period of time to get the desired goals, as well as planned investment quantity and its frequency. It is by doing this that one is also able to work out reasonable targets that can be achieved financially and build a good regimen in as much as the investment.
4. Compare The Investment Scenarios
It also gives rise to the opportunity of comparing different investment scenarios using the SIP calculator. Thus, the input values allow users to study efficiency of monthly invested amounts, expected rates of return, and investment periods on the final investment outcome. It allows investors to very easily find the best SIP investment strategy for them based on their investment goals and risk appetite.
5. Improved Awareness of Multiplication
SIP calculators focus more on the compounded factor, which is one, among other reasons that lead to the growth of investments. These calculators assist in defining the importance of begin early as well as investing repeatedly by emulating the effect on investments. The results may give a better picture of how small amounts can develop over time to big amounts and as a result, ensure investors stay on their investments.
6. Risk Mitigation
Every investment in financial instruments implies some risks inherent in it. Yet, risks can be reduced when using SIP calculators since the impact of changes in the market on the general outcome is illustrated. This analysis shows that by comparing various market conditions, the investor will be able to avoid some risks that are associated with markets and place the money at appropriate times and places.
7. Enhanced Financial Discipline
Last, the SIP calculators make the investors to be more disciplined in their investment. Using featured values necessary for achieving financial targets, such calculators persuade the users to contribute part of their income towards saving and investing on a constant basis. Though this process of investing might be challenging and demanding this very discipline results in long term financial stability and enhanced growth.
Also Read – The Benefits of SIP Investments
How to Use a SIP Calculator Effectively
SIP calculator refers to a tool or program that people use to determine the number of instalments when a large sum of money is paid periodically. To use a SIP Calculator effectively, follow these steps:
- Choose your investment goal: When stating a financial objective, be specific about the purpose of the money (retirement, child’s college tuition, or down payment on a home) and the timeframe for the achievement of the goal.
- Select an appropriate mutual fund scheme: Thus, there are mutual fund schemes as per the tolerance level towards risk, the time horizon, your financial objectives, which means you have to select the right mutual fund scheme based on it.
- Enter your investment details: Enter the investment amount and you have to fill up the tenor and expected returns to get the future value of investment.
- Assess and adjust: Analyze the obtained results, compare different investment situations and modify the input values, which will lead to those goals.
- Monitor and revise: You keep track of what you are investing in and update your portfolio as may be required on adjustment of your financial objectives or other factors in the stock market.
Conclusion
In conclusion, SIP calculators can be used effectively by investors as decision-making aids in order reduce their efforts and to reach their ultimate financial objectives. Subsequently, these calculators assist investors in coming up with an accurate financial plan, minimize risks and instill a high level of financial discipline. Furthermore, it helps investors to understand some myths about SIP calculators to avoid them and use all the possible SIP calculators for achieving long-term financial prosperity.
FAQs
What is the best time to start using a SIP calculator?
Ideally, a SIP calculator should be utilized when an individual is formulating his/her financial objectives and goals in investment. So, this will help you to find out the investment amounts you have to make and the contribution frequency which you need to maintain to achieve your goals.
Can a SIP calculator predict market risks?
An SIP calculator does not show you the looming dangers in the market. However, with predefined input parameters including the expected rate of return it can give the simulation of potential market oscillations effects on the investment results. Of course, this does not ensure that these tips will assist the users in making the best investment decisions, but it does work towards that.
Is a SIP calculator suitable for beginners?
Yes, SIP calculators are good to be used by beginners. Because of their simple design and clear and easy calculations, the newcomers in investing will be able to grasp fundamental ideas of the plan and free them up to steadily work towards their goals.
Are SIP calculators free to use?
Yes, it has been deduced from most of the online SIP calculators present most of them are provided free of charge. This makes it possible for an investor to take maximum advantage of these tools without having to pay or subscribe to it in any way. However, there are certain types of calculators that must be bought for a token amount to get the advanced functions.
