Know How To Calculate SIP Returns
3 min read
One of the most common investment schemes that Indians opt to allocate a portion of their monthly income to is mutual fund schemes. They are investment schemes in which an AMC collects money from a group of investors and once enough money is collected, it is used to invest in different financial securities. When you choose to buy a unit in a mutual fund scheme, you own a small stake in all the investments that are considered to be a part of the fund. Known for offering facilities such as professional management, mutual funds are considered a prudent investment choice.
After choosing a mutual fund scheme, you will find yourself with two investment choices. Namely, lump-sum investment and systematic investment plan (SIP). Under lump-sum, you are required to make a one-time investment. That’s not the case with SIPs.
What are systematic investment plans?
These plans are an investment mode in which you can invest in mutual funds every month, rather than investing the entire amount as is the case in a lumpsum investment. The investments in SIPs can be scheduled as either monthly, quarterly, or even semi-annually. After investing gradually and slowly in this manner, you may end up achieving your financial goals.
The money which is invested through a SIP enables you to purchase a certain number of fund units. Irrespective of the market conditions, if you were to continue investing in the fund, you can end up accumulating a considerable amount of wealth. Moreover, once the investment tenure and frequency of the mutual fund are determined, you can choose to automate your investments. This can be done by leaving a standing instruction with your bank to transfer the amount directly from your account into the mutual fund scheme of your choice, and that too on a certain date.
What are the reasons to invest in SIPs?
Here are some of the reasons why you should opt for SIPs:
- These plans are affordable and flexible:
Systematic investment plans can provide you with the flexibility to choose things like the amount, duration of the SIP, and interval. Furthermore, depending on the financial situation, you are also provided with the option to either increase or decrease your investment, and even pause or stop the SIP.
- There is also the feature of compounding:
Allocating funds with the help of SIP also allows you to take advantage of the feature referred to as compounding. Under compounding, you are able to earn interest upon interest as it is added to the original amount. With the help of compounding, you can accumulate wealth over time.
- They are helpful in diversifying investments:
Another benefit of systematic investment plans is that they are very helpful in diversifying your investments across different asset classes. This is known for helping in the mitigation of investment risks. Moreover, these plans can also help you in keeping yourself invested across different market cycles, which is important in making long-term gains.
How to determine SIP returns?
To determine the returns on your SIP returns, you could use the SIP calculator which is available online. Here are the steps involved:
- Setting your financial goal:
After reaching the SIP calculator, the first thing you need to do is to type the amount that you have set as your goal. So, for example, if your goal for your retirement corpus is ₹1,0000000, add the said amount. Once that’s done, proceed to the next step. The said step is:
- Modifying the duration:
After completing the first step, please add the duration you would like to keep investing in the mutual fund scheme. If you are thinking about long-term wealth creation, you could set 21 years as the duration.
- Setting the expected rate of return:
This is the final step in calculating the SIP returns from SIP calculator. In this step, all you need to do is add the expected rate of return. Here, you can choose to add a number of your choice. So, let’s say if you were to set the rate of return as 12%, you could reach your financial goal.
To reach the financial goal of ₹1,0000000, you must set aside ₹10,000 every month for SIP investment.
