If you know a little thing about mutual funds, you must have heard about SIP. A SIP is a Systematic Investment Plan which lets you invest in stocks of the different companies at the regular intervals. These intervals could be weekly, fortnightly, monthly etc. It is called systematic because it invests a stipulated amount at the regular interval set by you. The main benefit of SIP is there is a discipline in the investment which helps you achieve your goals. Now let’s understand in this article, how to know the correct and accurate amount you need to meet your future goals. There is a SIP Calculator out there which can help you to derive your required amount at the certain point of time in future. In this article, we will discuss the mutual fund calculator which can help you do your accurate financial planning.
What is SIP Calculator?
If you are reading this article means you are aware of the mutual fund investment. Wherein all the money of the investors is pulled together and put into the stock market based on the theme of the scheme.
Whenever you invest any money, the first thing you want to know the return you will get from that investment. While making any investment decision, we opt for the option which will yield us the maximum returns, but many of the time we fail because of wrong decisions we make based on someone’s guidance, due to lack of knowledge, not considering all the possible option etc.
While taking the investment decision, we always opt for those plans and projects which promise high returns. But, still most of the time we fail because of a wrong decision. Now, you shall not suffer such failure with a helpful tool, i.e., none other than the SIP calculator.
SIP calculator helps you to know the SIP return based on the compound interest. You just have to enter the amount you wish to invest every month, select how many years you want to invest and the calculator will fetch you the amount of return over the given period. With SIP calculator, with just a click you can know the return value or the maturity value of your investment you have made over the years.
SIP calculator is an online tool which helps investors to make an informed decision on their investment. With the help of this mutual fund calculator, you can easily plan for finance for the upcoming life events like buying a dream home, higher education of your children, a wedding of your children, worry-free retirement etc.
It takes very little efforts to know the magical figure for your goals. Usually, you just need to enter below details in order to get the return value on your investment.
- SIP amount
- SIP tenure (months/years)
- The expected rate of return
After entering these details, the calculator will fetch you the future amount of your investment within a second. the SIP calculator will help you to get the realistic and accurate amount you need for your future goals. It is a pre-defined mathematical formula so you can vouch for its accuracy. You don’t need to be dependent on your mutual fund distributors, financial adviser, agents for knowing your required amount. The calculator has a power to give you accurate answer just in a click.
Let’s understand the mathematical formula behind SIP calculator.
The formula used by SIP Calculator
FV = Future Value
P = SIP amount
i = compounded rate of return
As the returns are compounded for every investment installment, monthly SIP will be compounded as i/12.
Similarly, daily SIP will be compounded as i/365.
For instance, your SIP amount is Rs 10,000 for a tenure of 24 months. You expect a 10% annual rate of return. Then the future value of your SIP would be calculated as below:
Here, P= 10000
i = 10% = (10/100)/12 = 1/120
N= 12 months
Therefore, for the total investment of 1,20,000; amount at the end of the tenure will be Rs 1,26,703
Gone are the days when we used to do the complex calculation by ourselves. Thanks to the technology you can calculate the future value of your investment in just a click.
What should a good SIP calculator consist of?
- A good SIP calculator must be constructed taking all the required terms into consideration like present value, time value of money, IRR (internal rate of return), adjustment of inflation to calculate the future value of your investment. If any calculator doesn’t match these criteria, you should avoid using such a calculator.
- It also must be user-friendly, keeping in the mind that the user is a Lyman who doesn’t understand all the financial jargons mentioned above. It should ask for the minimal details from the user in order to give the best and accurate result.
- To start SIP, you first need to decide and set your financial goals. These goals should be realistic and attainable. The goals should be time bound as well. There is no meaning in having a goal without a timeline. So SIP calculator must ask you about your goal and time to achieve that goal.
- Another point which you should raise is why you want to invest in mutual funds over other investment avenues like fix deposit which is secure and gives steady returns. The calculator should be able to tell you the difference between SIP return and FD return over a various time frame. If you find mutual fund SIP beneficial as compare to fix deposit then and then 0nly you will go and invest into mutual funds.
Benefits of SIP Calculator:
- It simplifies the complex calculation of investment
- Gives accurate estimates of return on your investment
- The user has to enter the basic details only
- Gives result on the spot
- It is free of cost
- The user can tweak and compare various scenarios
- Some calculators are also providing investment suggestions based on your inputs
- The user can compare various investment options available and choose the best fit for his need
Types of SIP Calculator
There are two types of SIP calculator available. One is excel based calculator and second is an online calculator. Let’s check them one by one.
Excel based SIP calculator
The calculation of SIP return seems to be a difficult task for a layman. But it is actually not that hard as it seems to be. There is an MS Excel based formula available to help you out. The formula called RATE allows you to calculate the SIP returns easily. The rate function helps you to calculate the return needed to generate your desire corpus over a given period of time. It also helps to find out the interest rate on a loan, given the EMI amount, tenure and amount of loan.
Let’s understand this function with the help of an example. The SIP amount of Rs. 10000/ month is done on 1st of every month from Jan 2015 to Jan 2018. The SIP would have created a corpus of Rs. 4.59 lakhs at the end of Jan 2018.
Open the Excel sheet, look for the formula tab. search for the formula RATE. A dialogue box will appear on the screen and prompt you to give necessary inputs like,
Nper: is the total number of payment periods for the loan or investment.
Pmt: is the payment made each period and cannot change over the life of the loan or investment.
FV: is the future value, or a cash balance you want to attain after the last payment is made. If omitted, uses Fv = 0.
Guess: is your guess for what the rate will be; if omitted, Guess = 0.1 (10 percent).
In our case, Nper is 180 months ( 15 years). Pmt is Rs. 10000/ month, (SIP amount). Here one thing you need to remember is that you MUST enter the SIP amount as negative amount as it’s your outflow. FV is the maturity amount of your investment.
The result you will get is as shown in the above image. The rate of return would be 1.58% to achieve 1 crore of the corpus. It means, to generate a corpus of Rs. 1 crore over 180 months by investing Rs. 10000/month you need a monthly return of 1.58%
You can play around the numbers and check different combination as per your need. This formula will help you to know how much you need to invest in order to achieve your future goal.
To make it easy for you, I have prepared an excel sheet which is relatively easy as compared to this excel formula. you can download the same from the below link. Or you can go to the resource page and download the excel calculator. On my resource page, there are other useful calculators available for FREE.
Online SIP calculator
Upwardly is a robo advisory service with an expertise in mutual funds for all the types. It is offering goal-based investment suggestion for maximum return. It calculates the amount you would be needed in the future for your major life events like children’s education, marriage, buying a home, retirement etc. Based on your goal, it will suggest you the best mutual funds plans which have yield highest returns in the last 3 to 5 years. I like their goal based approach as it offers a realistic calculation of the real-life events.
Their calculator is one of the best in the industry. Simply enter the amount you wish to invest into mutual funds and it will calculate the return your investment will yield at the given time frame. It also suggests the return amount for various time frame ranging from 3 years to 30 years.
The calculator will help you in arriving the realistic goal-based planning. When you invest you must know for what purpose you are investing. Upwardly knows this fact very well and that’s why they are offering goal based calculator.
Another good thing they are offering is the comparison of various investment avenues and their returns. It will give you an idea about the various investment option you have and their return comparison so that you can take the best decision for your money.
Not only that, they will also suggest you the best possible funds for investment based on your goal. They have an algorithm by which they will fetch the best possible mutual funds scheme for you to invest for maximum returns. They also provide a mutual fund ranking based on the past 5 years performance, risk factor, fund’s liquidity, investment tenure etc.
Upwardly’s SIP calculator is one of the best in the industry. it provides a 360-degree view of your investment ranging from SIP returns from different time duration to goal-based investment planning to comparison between different investment avenues.
Mutual Fund Sahi Hai is the initiative of AMFI (Association of Mutual Funds in India). It was formed on 22nd August 1995 and all the mutual fund companies are its member. Mutualfundsahihai.com is run and maintain by AMFI and is supported by all the participating mutual fund companies. AMFI is the association of the SEBI registered mutual funds in India of all the registered AMCs.
It is a non-profit organization aiming to promote awareness of mutual funds in India. As on date, all 42 AMCs are the members of AMFI who have registered with SEBI.
Mutual Fund Sahi Hai is the campaign to create awareness about mutual funds in India. It offers 3 types of calculators.
- Inflation Calculator
- SIP Calculator
- Goal SIP Calculator
Let’s go further and check whether these calculators are meeting our expectation or not.
This calculator answers the very basic but very important question for any financial planning. How much is enough? The Inflation Calculator will help you identify the amount you would need in the future to meet your current expenses considering inflation. This is a very much important aspect of planning for any goal. Many a time we calculate the future amount without considering inflation.
We set a goal for say 1 crore after 20 years. For that, we need to invest x amount every month into SIP. With that SIP we will reach the desired amount in the future, but whether that amount will be sufficient at that time or not? If that amount is not adequate than the whole planning we have done is failed.
In the above example, we have considered monthly expenses of Rs. 25000. The inflation rate is taken as 7%. After 20 years you need Rs. 96742.11 to meet your expenses for the month. It is almost 4 times what you are spending right now. This is an eye-opener for so many people as they might not have considered the future value of the money based on the inflation.
So if you are planning for Rs. 1 crore as your retirement corpus, now you have to think 4 times of that amount i.e. 4 crores. This is how the things work in real life.
Before deriving your future goal amount you must have to consider the future value of the money, otherwise, you will fall short of your target. So every financial planning must include inflation to derive goal amount.
Like all other calculators, this calculator does the simple job of calculating the future value of your investment. It takes the expected rate of return and investment duration into account for calculation. This is the most simple and useful calculator for knowing the future value of your investment at the given point in time.
In the above example, we have taken Rs. 5000 as investment amount every month for 20 years at the expected return of 15% (considering you are investing into equity-oriented mutual funds for such a long period). The total investment amount is Rs. 12 lakhs against which you will get approx Rs. 75 lakhs after 20 years. Provided your investment yield you 15% CAGR return for 20 years. Yes, there is an assumption that your investment will fetch you 15% CAGR for 20 years.
This assumption is based on the past performance of the market performance. You can tweak the investment amount with different numbers to check how many sips you need to start to achieve your desired goal after 20 years. The calculator is very simple and user-friendly that a layman can also understand and use.
Goal-based SIP Calculator
This one is my favorite as it does a reverse calculation for your goal. It tells you how much amount you need to invest in SIP each month in order to achieve your future goal. So in this case, you need to know your future requirement first. ( Rs. 1 crore in this example). The required amount can be calculated by using the inflation calculator we have discussed above. Once you know how much is enough, you can use this calculator to derive your monthly SIP amount.
Reason: Above all three calculators are helpful in doing financial planning. I have found them very easy to understand and user-friendly. A layman can also use this calculator for calculating investment amount. The drawback is that it’s not giving a comparison of investment into mutual funds with fix deposit of any other investment avenues. It only provides you the calculations for the various time frame but it does not suggest any SIP recommendations based on the query input.
PolicyBazar.com is another mutual fund aggregator which helps you to buy the mutual funds from all the AMCs. Their calculator uses some important yet basic details to derive the investment amount. Here is a step by step guide on how to use their calculator.
This is the goal based sip calculator in which you have to enter the desired amount, investment period and rate of return expected. The calculator will tell you the amount you need to invest monthly in order to achieve your desired goal. It simply gives the earning on your investment without considering the inflation rate. It is user-friendly but lacks the inflation rate which is a very important aspect of any investment planning.
It is a very basic and simple calculator for doing a first-hand check of what you need to invest in order to achieve your financial goals. It is not an in-depth calculator which covers all the aspects of investment and financial planning.
The calculator is very basic and does not take into account all the necessary aspect of financial planning. It is no doubt user-friendly but lacks very important aspect like inflation into its calculation. It will not give you actual figure you need to invest for achieving your financial goal. It also doesn’t give any comparison with the other investment avenues like fix deposit, recurring deposit etc.
The accuracy of the SIP calculator plays a vital role in your financial planning. All the calculators available out there are giving your output based on the assumptions. So you need to enter the data points very carefully and genuinely. Otherwise, it will give you a wrong or rosy picture which is of no use.