Investors these days realize the importance of financial planning and investments in their lives. Most of these retail investors opt for mutual fund investments due to the several mutual fund benefits enjoyed by them.
Mutual fund investments are ideal for novice investors who have little to no knowledge about the equity markets due to the professional management it offers to investors.
An investor can invest in mutual funds through two methods – SIP or lumpsum, which must be chosen on basis of his financial objectives, risk profile, availability of funds, frequency of cash inflows, etc.
Due to several benefits such as rupee cost averaging, power of compounding, no need to time the markets, financial discipline, etc. several investors prefer investing in mutual funds through SIP mode of investment.
In this article, we will understand how to calculate the actual return of SIP of mutual fund investments. Let’s quickly recall what an SIP investment is.
What is SIP?
SIP, short for Systematic Investment Plan allows individuals to invest their money in mutual funds in a systematic and disciplined way. Under SIP investment, an investor invests a fixed amount of money on a particular date at regular intervals for a fixed period of time.
Thus, SIP investments allow investors to break their investment amount into small, insignificant amounts which can be invested over a period of time. This makes it easy on the pockets of the investors.
How to calculate returns on SIP investments?
If you are wondering how to calculate the future returns on your SIP investments, you can use a mutual funds return calculator. Let’s understand how to use an SIP calculator. An SIP return calculator usually has 3 input boxes. These are:
- Monthly investment amount
- The duration for which an investor is likely to stay invested
- Expected annual returns earned on the mutual fund scheme
All you need to do is enter the above-mentioned three parameters. Note that the investment amount can be as little as Rs 100 per month or as high Rs 30,000 per month (or even more).
Even though SIP mutual funds do not exercise any lock-in period on investors, experts recommend investors to stay invested for a longer duration of say 10 years or more.
Once, an investor has input these three values, they just need to click on the calculate button. This will help them evaluate the future annual returns over a specified period of time. An investor also has the liberty to adjust these values basis their budget and financial objectives.
Note that several SIP calculators also provide investors with an option of adjusting their returns against an appropriate rate of inflation. It is always advised to consider inflation as it provides a more realistic picture of your mutual fund investments. Happy investing!