Published on December 7th, 2023
Starting a mutual fund SIP (Systematic Investment Plan) is wise for regular wealth creation. But, calculating projected returns can be confusing for new investors. That’s where an SIP calculator comes into play!
This handy online tool helps forecast SIP returns more accurately. Just input a few details, and the calculator provides an approximate future value. But simply using default assumptions may provide inaccurate projections.
To optimize your SIP investment, you must learn judiciously to use the SIP return calculator.
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Understand All SIP Calculator Inputs
The more precise data you feed, the more realistic output you’ll receive. Be thorough with what details the calculator captures:
- Monthly/yearly investment amount
- SIP tenure
- Expected rate of interest
- Investment asset class – equity, debt, etc.
- Investment frequency – monthly, quarterly, etc.
Additionally, factor your age, investment horizon, financial goals and risk appetite. Evaluating all these inputs holistically will help you arrive at the ideal SIP amount, asset allocation and tenure.
Play With Interest Rate Projections
SIP calculator assume an average annualized return on investment. Generally, 12-15% returns for equity funds and 7-9% for debt funds is set as default.
However, past performance shows that market-linked returns vary significantly year-on-year. So, don’t take projected returns at face value.
Instead, calculate with both higher and lower interest rates. This will provide your goal corpus’s estimated upper and lower value range. Be conservative and realistic.
Factor In Inflation Impact
While estimating future corpus, account for inflation eating into returns. Generally, enter at least a 3-4% annual inflation rate into the calculator. This will depict a more realistic goal corpus against rising prices.
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Increase SIP Contribution Annually
SIP calculators by default show a corpus built by the same SIP instalment month-after-month. But as your income rises yearly, also proportionately increase your SIP amount.
Even a mere 10% annual topping-up expands the final corpus value significantly. Use this calculator feature effectively.
Align Corpus To Evolving Financial Life Goals
Revisit your SIP investment return forecast every year while tracking actual corpus growth. Review goals and align target capital needed using the calculator.
For example, prioritize goals by duration – short-term, medium-term and long-term. Assign separate SIPs for each goal suite.
Your Goal Corpus May Still Fall Short
Despite best estimates, your corpus may miss the projected target significantly if equity investments underperform. Have contingency plans through other investments like PPF, NPS, FD/RDs, etc.
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The Right Perspective On SIP Return Projections
SIP calculators provide approximate, not assured, returns. Equity investments are especially market-dependent. So consider various scenarios and focus on investing consistency, not just target corpus.
Stay realistic about returns, but don’t lose faith in seeing market fluctuations. The key is giving your SIP enough tenure to ride volatile periods.
Used strategically, an online SIP return calculator provides valuable estimation of what your systematic investments can accrue towards achieving key financial priorities. Hopefully, these tips will help you invest smartly!
Feature Image Source: Sasun Bughdaryan