Any tool is supposed to make life easy for the person using it. What if we tell you that there is a tool that can help you strategically plan your mutual fund investments, especially if you wish to remain invested for the long run? You can target your long term financial goals by investing in mutual funds through a Systematic Investment Plan. And to know exactly how much your monthly SIP investments should be so that you are able to gradually build a long term corpus, you can use the SIP calculator, a free online tool that is accessible to everyone.
What is an online SIP calculator?
If you are planning to invest for long term financial goals like retirement planning, children’s education, or any goal that needs financial planning you can use the SIP calculator to your advantage. There are two ways in which you can use the SIP calculator –
1. If you know your ultimate financial goal
2. If you want to invest and know the assumed returns
Let us demonstrate two examples to understand the different ways in which the SIP calculator works.
You know your financial goal
Let’s assume that you are building a corpus for marriage. You do not want to burden your parents with wedding costs and want to build a corpus of Rs. 25 lakhs in the next 7 years. You can use a SIP calculator to compute how much your monthly SIP should be so that at the end of your investment journey you have achieved the corpus to have a grand wedding. Let us assume the mutual fund delivers an 8% rate of return.
To get results:
- Input the total corpus that you want to achieve i.e. Rs. 25 lakhs
- Input the number of years after which you want the money i.e. 7 years
- Input the expected rate of return i.e. 8%
The SIP calculator will compute and tell you that you need to invest Rs. 22,299 monthly via SIP to achieve your wedding corpus.
You want to invest and determine the assumed returns
Let us assume that you want to build a retirement corpus and can invest Rs. 10,000 every month via SIP. You have 30 years in hand before you retire, and the assumed rate of return is 10%.
To get the results:
- Input the monthly SIP sum i.e., Rs 10,000
- Input investment time horizon i.e., 30 years
- The assumed rate of return i.e., 10%
The SIP calculator will display –
- Total invested sum – Rs 36 lacs
- Total wealth created – Rs 2.26 crores
Disclaimer: Past performance may or may not sustain in the future. The above is for illustration purposes only and should not be construed as investment advice or a guarantee of returns.
Why should one invest in mutual funds via SIP?
There are several reasons why one should consider starting a monthly SIP in mutual funds:
Brings investment discipline
For some new investors bringing in an investment, discipline might be necessary. Manual monthly SIP investments might not be the right way to bring in investment discipline as investors might forget to invest in the predetermined date. However, if one automates their SIP transactions, every month on a predetermined date a fixed SIP sum is debited from the investor’s savings account and electronically transferred to the fund. Doing so may inculcate the discipline of regular investing and investors do not have to worry about making manual SIP investments.
SIPs offer flexibility
Suppose you start investing in a particular mutual fund scheme with the minimum SIP investment sum. In the future, if you want to increase this investment sum you can easily do it by informing the AMC through one of their platforms made available like a mutual fund app. Investors can increase or decrease their monthly SIP sum. They can even stop their SIP in a particular fund and at this point, they need not redeem their investments. They can continue to remain invested as long as they wish even after stopping SIP investments in that fund. Similarly, in the future, they can start a monthly SIP in the same fund. There are no cancellation charges or any entry load for starting a SIP in mutual funds.
Benefit from rupee cost averaging and power of compounding
To witness the compounding effect in SIP investments, it is better to remain invested for the long run. Compounding in mutual funds seems to occur when the initial investment sum earns returns and when these returns are reinvested and start earning interest of their own. Another way to benefit from long term SIP investing is through averaging your cost of purchase of buying mutual fund units. When the NAV is low your SIP can buy more units and similarly when the NAV is high investors can buy fewer units. However, in the long run, since markets fluctuate from time to time, investors can buy more units and average their total cost of purchase.
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