February 2, 2023

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How do you determine your SIP returns?

3 min read
Calculate SIP (Systematic Investment Plan) returns: How to calculate returns  on SIP of mutual funds

An SIP (systematic investment plan) is a highly preferred investment mode in a mutual fund that permits you to invest your money periodically, as predetermined by you. The compounding effect in SIP mode allows you to grow your investible funds over time into a substantial corpus. But the major question is, how do you compute your SIP returns?

While being aware of the sources of returns is important, it is equally important to know how you can compute your SIP returns. Here’s where you can take the help of an online SIP calculator. 

What is an online SIP calculator?

An online SIP calculator helps you to calculate the returns you would earn on your periodic SIP investment. The online calculator even enlightens you about the figures you would need to invest per month to generate a particular corpus. To put this in simple words, an online SIP calculator serves as a roadmap to achieve your distinct crucial financial goals. By using the online calculator, you can compute complex financial calculations without the need for a paper and pen. Here, you just require adding specific figures, and the SIP calculator will quickly compute the outcome in no time. 

How does an online SIP calculator work?

An online SIP calculator generally requires three major inputs. These are – 

∙       Monthly investment figure

∙       Investment tenure

∙       Expected annual returns

You must input these three figures in the online SIP calculator according to your cash inflow and budget. To compute your preferred corpus, you can make relevant changes to the added figures. Here’s an instance, which can make you understand the manner in which an SIP calculator works. 

Suppose, you are 25 years of age, and one of the crucial long-term goals you have is to accumulate a post-retirement corpus of Rs 4 crore. To prepare a financial plan and figure out the monthly amount you require to accumulate this corpus, you can use an online SIP calculator. According to calculations, for a post-retirement corpus of Rs 4 crore, you must monthly invest in a mutual fund scheme through an SIP an amount equaling Rs 5,935 at an assumed rate of interest of 13 per cent per annum for 35 years. By using an online SIP calculator, you can easily derive at this calculation in a few seconds.

Few online SIP calculators even come with an ‘adjust for inflation’ option. You might use this option if you fail to manually compute the accurate future value of your life goal after considering inflation. To add this feature to your online calculation, ensure to agree on the inflation option for an inflation-adjusted return. Upon agreeing on the inflation option on the online SIP calculator, your calculation will automatically provide an inflation-adjusted return. In case you do not want to include the inflation feature in your SIP calculation, you always have the choice to disagree on including this feature in your final computation. 

However, according to financial advisors, it is better to add inflation to your computation because this endows a realistic figure on your overall future earnings through SIP mutual funds. There are a few online SIP calculators that even may show a graphical representation of how your monthly contributions in SIPs would grow over time. 

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