A Systematic Investment Plan, commonly known as SIP, is a mode of investment offered to individuals for investing in Mutual Funds. As the name suggests, it is a systematic way of investing fixed amounts in shortlisted mutual fund schemes, with the money getting credited into the scheme at pre-determined intervals; weekly, monthly, or quarterly, among others. Simply put, it is an automated way of investing based on already decided parameters, such as the SIP amount, frequency of payments, etc.
SIPs allow investors the freedom to invest in Mutual Funds without burning a hole in their pockets. The growing popularity of SIP investments is primarily because the amount is invested in portions, which neutralizes the effects of market volatility to a great extent.
An SIP Calculator is a tool with the help of which you can get an idea on how much money you can accumulate over a period of time. All you have to do is to fill the suggested inputs like the duration of investment, the average rate of returns expected, and the amount you want to invest per month. Simply put, it is a calculator that helps you achieve your dreams.
As already established, the logic governing SIP Calculators takes into account certain factors for projecting returns. This includes the amount that is to be invested, the duration of the investment or the investment horizon as many know it, and the returns expected by the investor, mostly annual.
The investor needs to fill in these details in their respective fields to arrive at the final projection. Upon hitting the “Calculate” button after entering these values, the user can view the corpus his investment is likely to compound into by the end of the investment term.
Let's visualize this with the help of an example: Herein the investor is looking to invest Rs. 4,000 every month for as many as 10 years, with the expectation of fetching an average rate of return of 10%. Upon entering these values into the SIP Calculator, he shall arrive at a maturity amount of Rs. 8,19,378, against a total investment of Rs. 4,80,000. Any changes in the entered values shall end up tweaking the final output. For instance, if the expected rate of returns is escalated by a mere 1%, from 10% to 11%, the final compounded corpus shall jump to Rs. 8,68,000.
SIP Calculators help investors arrive at the estimated corpus their invested money may multiply into, at just a mouse click. The freedom to compare outcomes helps investors determine what they want. This clarity of mindset is imperative when finalizing an investment strategy. With the help of this Calculator an Investor can check how changes in SIP Amount & SIP Tenure will affect the Future Corpus.
Let us simplify this for you with the help of an example. Let's assume an investor is looking to start an SIP investment for buying a car worth Rs. 8,00,000 in 5 Years, but is not aware of how much to invest per month and what rate it should grow at to ensure he reaches his Goal. Consequently, he decides to check projections on the SIP Calculator. Upon making the inputs needed, he concludes that he shall have to invest Rs. 10,000 a month for the next 5 years to raise the amount needed, provided his investment fetches an average rate of return of 12% per annum. Thus, using an SIP Calculator provides a more organized and well-thought-out approach, which consequently, translates into well-informed decisions and helps investors achieve what they are targeting.
Shortlisting the best SIP plan to invest can be a hard task, simply because it involves taking into account too many factors, such as the individual’s risk appetite and the targeted investment horizon. Simply put, no two individuals have the same investment goals and priroties, therefore the recommended scheme would be different for each. This is why all investment decisions must be taken on the suggestion of a SEBI Registered Investment Advisor.
Only after properly diagnosing your risk appetite, investment horizon and investment goals, your wealth management consultant will be able to outline an appropriate investment strategy, and suggest suitable investment options.
Much like your physical well-being, the overall health of your investment portfolio and SIPs also needs to be diagnosed for any ailments, largely because the performance of the funds under your SIP may start to vary over time. For instance, the top performer in an asset class may be falling behind after starting off well.
Yet, many of us refrain from tracking and reviewing the performance of the schemes in our portfolios simply out of laziness. It is also important that the time interval between such reviews not be too long, as it may minimize the accuracy of the diagnose. Reviews done too early, on the other hand, may not be comprehensive, owing to the lack of relevant data.
SIPs in Fixed Income Schemes are relatively immune to market fluctuations, as the corpus herein is diverted to invest in bonds and debt securities that are comparatively safer. This SIP plan is particularly popular among those who have a conservative investment risk profile, and therefore prefer keeping the invested corpus intact.
SIPs done under fixed income schemes help provide much-needed stability to investor portfolios in a volatile market and simultaneously maintain their liquidity. In simpler words, they help cushion portfolios from the impact of equity market fluctuations, thereby balancing the asset allocation.
Those looking to set aside a portion of their earnings to ensure a secure future for themselves or their loved ones, need to look no further than a Systematic Investment Plan. Those still skeptical, however, need to understand the many benefits SIPs offer. For starters, SIPs are pocket friendly. They offer investors the opportunity to compound wealth by parking small, manageable amounts.
All the investors need to do is pass on necessary instructions to their banks for automating their investment, even if it is worth Rs. 500 a month. This facility also makes them a very convenient investment option. SIPs also provide Rupee Cost Averaging, a factor which neutralises the effects of Market Volatility and saves one from trying to time the Markets. SIPs also install Financial Discipline as one has to plan his or her Income and Expenses in a manner that they match the SIP Amount Allocation.
