For all those who want to open a demat account and are thinking of investing in mutual funds (MFs), it is important to understand what an “SIP calculator” is. SIP stands for “systematic investment plans.”
Under a SIP, you invest a fixed amount in an MF typically once a month with an objective to generate significant returns on invested amounts over the years. As you invest in an SIP every month, you end up averaging out the price at which you make your investments.
This is because you end up investing regardless of the level of the stock market. Hence, you should not worry about timing the market. That said, investors often find it difficult to decide how much they should invest in an SIP. They are also not sure how much their monthly SIP investments will amount to over a long period of time.
This is where an SIP calculator can be very helpful.
What Exactly is an SIP Calculator?
Let us take an example to understand what an SIP calculator is or how it works. Suppose you want to make a SIP of ₹10,000 in an MF every month. By checking the historical returns of this MF, you realize that it has provided a return of 12% per year in the last 10 years.
Therefore, you assume that it will provide a return of 12% to you as well. Here, you must keep in mind that you are making an assumption. Whether or not this fund will provide a return of 12% in the future is difficult to say even for an expert because the future is unpredictable. But, let us say that you make an assumption that it will provide a 12% yearly return.
You also decide that you will be making SIP investments of ₹10,000 per month for the next 20 years. You want to know how much the value of your investments will be after 20 years.
This is where an SIP calculator is handy. For example, in the SIP calculator, when you enter your monthly SIP amount of ₹10,000, the expected return of 12% per year, and duration of investment of 20 years, this calculator will show that you will have an investment corpus of ₹99,91,479 at the end of 20 years.
Hence, such a calculator can be extremely useful while making SIP-related decisions.
How to Make the Best of Your Investments Using a SIP Calculator?
To maximize your investment returns, you should check out the available financial calculators and follow these steps:
● Have an investment goal: Investing without a goal is like starting a journey without knowing your destination. To illustrate the point, in the example shared above, you can say that you need to have a corpus of ₹99,91,479 at the end of 20 years to invest in a flat or a house. In other words, you need to know two things: how much money you will need and the purpose of creating that corpus.
● Know your risk appetite: Along with an investment goal, you need to know your risk appetite. If you can take high risk, you can invest more in equities. However, if you do not want to take risks, you should invest in fixed-return options, such as bonds and bank fixed deposits.
● Duration of investment: Another factor you must know is the duration of your investment. The longer the duration, the bigger the corpus you can make. However, not everyone can have an extremely long duration of investment. Suppose you are 50 years old and you are going to retire at 60. You want to create a retirement fund from your monthly salary. In this case, you have only 10 years of work-life left to invest.
● Research the investment options: Suppose you figure out that you need a 10% per year return to reach your goal. There may be multiple MFs in the market, which can provide you 10% per annum return; however, they may not be equally good. Hence, you need to research your investment options thoroughly. For this purpose, you should check how consistently an MF has provided returns over the past, the management philosophy of a fund, and the track record of a fund manager.
Conclusion:
A SIP calculator is one of the most useful tools for retail investors. Hence, if you are going to open a demat account, you should learn how to use this tool because it can go a long way in helping you reach your investment objective.
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