How to calculate your SIP returns?

Many people choose to invest in an SIP (Systematic Investment Plan) with a financial goal in mind. An SIP allows you to make regular investments in a mutual fund of your choice, and over time, these investments can add up to a sizable sum. When choosing a mutual fund, you need to consider your financial goals, risk appetite, and current investment portfolio. Along with this, a key consideration is the rate of return that you can expect to earn.

Whether it’s saving for a down payment on a house, funding your child’s education, or simply building your corpus for retirement, it’s important to know how much returns you can expect from your investment. This information can be used to compare the performance of different investments and to choose the ones that are most likely to provide you with the best return. But how do you calculate SIP returns? Let’s take a look.

Take the help of an SIP calculator

The easiest method to calculate your SIP returns is to use an SIP calculator online. This tool gives you an idea of how much money you need to set aside each month to reach your goal. Also, most reputable financial websites allow individuals to use SIP calculators for free.

Here’s how you can use an online calculator to estimate your SIP returns:

– Enter the amount you plan to invest each month

– Enter the expected rate of return

– Enter the time period for which you plan to stay invested

The calculator will show you the estimated total value of your investment at the time of maturity. Most calculators also show a graphical and tabular representation of your returns, making it easy to visualise the power of compounding.

Why use an SIP calculator rather than calculating your returns manually?

Before you invest in mutual funds through SIPs, it is advisable to always use an SIP calculator instead of doing manual calculations. Here’s why:

  1. 1. Provides fast and accurate results: An SIP calculator can give you an instant estimate of your returns, based on the information you input. This is much faster than calculating your returns manually, and it’s also more accurate since the SIP calculator is designed on the compound interest formula.
  1. 2. Helps you choose the best SIP investment plan: With an SIP calculator, you can experiment with different investment scenarios to see how they would impact your returns. You do not have to enter all dates and amounts multiple times. Just set the start date, the years you want to stay invested, the amount, the frequency, and the expected return. By analysing the results, you can choose the right mutual fund to invest in.
  1. 3. Makes goal-based investing easier: By using an SIP calculator, you can see how close (or how far away) you are from reaching your financial goals. This makes goal-based investing much easier, as you can make adjustments to your SIP investment strategy accordingly.

Closing thoughts

An SIP calculator is preferably the best tool to get an idea of your potential SIP returns quickly and accurately. Even new investors without much financial knowledge about the way SIP returns work can use this tool without difficulty and get the most precise estimate of their returns.

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