Investing in the stock market via mutual funds is another way to build wealth over time. However, most investors still approach investing without utilising the tools available at their service. One such tool is the systematic investment calculator that allows investors to assess investment plans, understand potential gains, and make informed investment decisions. This article explains what a systematic investment calculator is, its benefits, and highlights its importance. Furthermore, it also mentions a few steps that will help investors effectively use a systematic investment calculator to optimise their investment planning.
Understanding Systematic Investment Calculator and its Benefits
A systematic investment calculator or SIP calculator helps investors visualise how small but regular investments in mutual funds can grow into a potentially large amount over time. It includes various parameters such as the investment amount, the duration of the investment, the expected rate of return and projects the estimated future value of the investments. Various advantages of using a SIP calculator are:
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Understanding SIPs and Aligning Investments With Inflation
The SIP calculator helps investors understand the importance of one of the most disciplined and effective ways of investing in mutual funds i.e., SIP. It does this by showcasing how their investment grows in value due to the power of compounding and benefit from cost-rupee averaging, helping them understand the long term advantages of SIPs. For instance, a SIP calculator demonstrates how starting early and staying consistent even during market fluctuations can potentially grow the value of their investments. Furthermore, by taking into account expected inflation rates that erode the purchasing power of capital, some SIP calculators assist investors in understanding the importance of their investments. With such calculators, investors can set realistic expectations that align with their future financial goals.
Determining Investment Amounts and Comparing Investment Scenarios
Apart from providing the future value of an invested amount, a SIP calculator also helps investors determine the monthly SIP amount needed to accumulate a corpus after a certain time. This allows investors to plan their financials to meet their investment goals. Furthermore, with an SIP calculator, individuals can compare various investment scenarios. By changing input values such as the monthly amount, expected inflation rate, expected rate of return, and tenure, users can understand the impact of these values on the future investment value. This again helps investors create an investment budget.
Investing Towards a Goal
A SIP calculator allows individuals to invest towards financial goals, be it retirement planning or their child’s education. It helps investors enter the desired amount and calculate the amount and the time for which they need to invest monthly to achieve their financial goals.
Importance of Mutual Fund SIP calculator
Using a mutual fund SIP calculator is important for two main reasons:
- Helps Understand Rupee Cost Averaging: As the stock market is volatile, the prices of stocks within a mutual fund keep fluctuating, eventually affecting the Net Asset Value or NAV of the mutual fund. By investing a fixed amount every month, investors get an opportunity to purchase a few mutual fund units at a higher price and other units at a lower price, thus, potentially reducing the overall cost per unit over time.
- Helps Understand the Power of Compounding: If the investments are held for a longer time frame and the earnings are reinvested, the capital may end up growing at an exponential rate.
Effectively Using a SIP Calculator
To effectively use a systematic investment calculator, investors can follow the steps given below:
Step 1: Input Various Values – Enter values such as monthly contribution amount, expected rate of return, and the total duration in years for which the investors choose to remain invested. The rate of return mostly depends upon the fund’s past performance and market funds.
Step 2: Adjust for Inflation: To understand the real value of the investments, some calculators allow users to factor in inflation.
Step 3: Optimise Results – After the calculator provides results of the future value of their investment, users can optimise thier investment plans to meet their financial needs.
Conclusion
A systematic investment calculator is an extremely useful tool for modern investors as it allows them to simplify the investment process and provides clarity on the financial goals. On top of instilling financial discipline, these calculators assist investors in understanding SIPs and aligning investments to overcome inflation. Furthermore, they also help them visualise various investment scenarios and invest to meet their financial goals. By following the steps mentioned above, users can effectively use a SIP calculator to their advantage.
