A Basic Understanding of SIP and SIP Calculator

by Shreya Paliwal Mutual Fund Financial services

In order to aid the process of converting your savings to investments, SIP mutual fund is a user friendly, viable option. SIP aka Systematic Investment Plan is a hassle free way of making mutual fund investments for the short, medium or long term, based on one’s financial goals. Every individual has different financial plans for the future such as buying a car or buying a house or wedding or abroad education, or using it for their start-up, etc. When planned early, followed in a disciplined and meticulous way, these goals can be reached systematically by an individual.

To start a SIP mutual fund, an investor chooses an amount to be periodically invested in a scheme for a given period of time. The SIP frequency can be daily, monthly, yearly or quarterly. Once a bank mandate is given by the investor when beginning the SIP, each month the same amount gets debited from investor’s bank account. Hence, this is a safe, convenient and transparent process that investors can continue for a long time period, in order to attain a substantial financial corpus.

SIP Mutual fund has various benefits for investors and gives them the much required confidence for remaining invested over the long term, a few being-

- It can be started with an amount as small as monthly Rs 500, which makes it a viable investment option even for students.

- It can be started online with a few clicks.

- It is well regulated and managed by professional fund managers.

- Power of compounding makes the money grow exponentially with time, which is why long term investing is always highly recommended.

SIP can be a good start for anyone looking to set foot in the world of investments and start moving towards their financial goals. For aiding this process, there are useful tools available online for investors, such as the SIP Calculator.

It will ask for the amount one wish to invest in a fund, the frequency and the investment time period. Then, with an assumed rate of return, it helps to understand the estimated corpus that an investor can expect to accumulate over the investment time period.

For example, if Vicky invests Rs 20,000 monthly in a SIP mutual fund for a period of 10 years, assuming the rate of return to be 12%, Vicky can accumulate a corpus of than Rs 46 Lakhs. In this case, the invested amount by him over 10 years is Rs 24 Lakhs. Thus, the tool helps him in understanding how much he should keep aside from his monthly salary or allowance, to invest for attaining his financial goals.

One more SIP calculator that helps investors is the Target SIP Calculator. Here, one enters the goal value they wish to reach after investing for a certain time period. Then, this tool tells you how much to invest monthly in a SIP to reach this value. Suppose, Kaveri wants to reach a corpus of Rs 10 lakhs after 10 years through her SIP mutual fund Investment. Then, assuming 12% rate of return, we find out that the ideal monthly SIP Investment for her would be Rs. 4,347 only. This calculation was done in seconds using a target SIP Calculator.

In this read, we tried to form a basic understanding of SIP mutual fund and its counterpart- the SIP calculator. It is definitely a useful way for investors to navigate their investments and benefit out of it.