Bajaj Broking Guide: Calculate Your Monthly SIP Returns in Minutes

We earn, we save; one or the other salaried individual or businessman thinks in this way, but do we know the correct way of saving their hard-earned money? So, SIP is a way to help save your money with higher returns if invested in the right company. What is an SIP? A Systematic Investment Plan […]

We earn, we save; one or the other salaried individual or businessman thinks in this way, but do we know the correct way of saving their hard-earned money? So, SIP is a way to help save your money with higher returns if invested in the right company.

What is an SIP?

A Systematic Investment Plan (SIP) is a way to invest a fixed sum of money at regular intervals (monthly is the popular one) in a mutual fund. It is a disciplined methodology of saving and wealth creation that allows an investor to make regular small investments, starting with anything between Rs. 100 and 500. 

How does it work?

• Fixed amount: You decide on a fixed amount to invest, say Rs 5000 per month.
• Regular intervals: In the next step, you choose how often you want to invest, say monthly or quarterly.
• Mutual funds: The money is invested in a mutual fund scheme of your choice, which is a pool of money from many investors to buy stocks, bonds, or other securities.
• Automated deductions: Your bank can be set up to automatically deduct the investment amount from your account on the scheduled date(s).
• Net Asset Value (NAV): The amount invested buys units of the mutual fund based on the scheme’s Net Asset Value (NAV) on that day.
• Discipline and long-term growth: SIPs keep up with the disciplined investing regime and create wealth over the long term through the power of compounding.

Understanding an SIP calculator

Based on financial management, a tentative decision on investment plays an important role in achieving your financial goals. Here, an SIP calculator would help you make decisions about which SIP to invest in for your unique financial requirement, time horizon, risk potential, and overall goals of investment.

Essentially, an SIP calculator is a reliable online financial tool designed to assist investors in estimating the amount and returns from actual SIP investments that they intend to make. The calculator utilises the following parameters: the amount of initial investment, investment tenure, expected return rate, and how frequently you can invest. In this perspective, the SIP calculator gives an investor a computed estimation of the amount that could be collected over a period.

Main Components of a SIP Calculator

To aid your understanding of the working principle of an SIP calculator and its effective contribution to making you an informed investor, we feel it is proper to place some emphasis on its key elements:

 

• Amount of Investment: This is one amount (the principal) that the investor invests at regular or frequent intervals.
• Tenure of Investment: This is the time period the investor engages in before abandoning the SIP.
• Expected Return Rate: This is the expected annual rate of return (based on an average rate of return) that an investor expects one to earn out of the mutual fund.
• Investment Frequency: This indicates how often or how regularly an investor makes a contribution to the SIP. Generally speaking, contributions to an SIP are made monthly.

How Do SIP Calculators Work?

SIP calculators are based on a certain mathematical formula, which is implemented automatically for the specific calculations. According to the entries that you specify, based on the principle of compounding, the SIP calculators provide you with estimations of your investments at a future date. Compounding through an SIP is essentially interest earned on the investment you make in an SIP and interest on the amounts of interest accrued. It estimates investment returns at the end of the maturity period.

For example, SIP could be:

If you invest in an SIP amounting to ₹5,000 a month and you expect the annual return to be 12, the value of your SIP investment would amount to approximately ₹323,504.8 after five years.

Benefits of a SIP Calculator

The SIP calculator will benefit you in the following ways:

• Accurate Calculation: You are presented with accurate estimates to base your financial goals upon.
• Financial Planning: By working with almost precise calculations to provide approximate estimates, you can be able to make plans for certain specific financial goals such as education or marriage.
• Making Comparisons: SIP calculators allow you to compare the amounts of investment before choosing those that are likely to satisfy your financial needs, depending on investment tenures.
• Making Informed Decisions: Knowledge relating to probable outcomes from your investment, accentuated by the SIP calculator, empowers you to meaningfully influence your financial future.

Conclusion

SIP calculators are efficient tools that one can use to estimate what one could earn with their SIP. However, as you input details in the calculator, these must be defined based on realistic rates of return. Still, while using a calculator to calculate your returns from an SIP investment, one must note that an SIP is essentially investing in a mutual fund that is market-linked and rising with the honour of market risk.