In Business World Systematic Investment Plans (SIPs) are powerful financial tools that help you accumulate wealth over time. Unlike lumpsum investments, SIPs allow you to make piecemeal deposits over a prolonged period. This helps you in several ways; you won’t have to worry about the burden of making a large, one-time payment, you can choose a convenient investment amount, the power of compounding helps you achieve your goals faster, and you can leverage the benefit of rupee-cost averaging.
Thus, SIPs offer several benefits over lumpsum investments. However, it is crucial that you use SIP calculators before making a financial decision, as these calculators help you plan your finances, track your investments, and make better investment decisions.
Let us now look at six popular SIP calculators, along with their benefits.
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Popular SIP calculators in India
1. Simple SIP calculators
Most calculators found online are simple SIP calculators, which help you calculate the future value of your SIP investments, taking the rate of return and tenure into consideration. Whether you are investing in mutual funds offered by NBFCs or banks via SIPs, you can easily calculate the estimated value of your investments after the investment period. These calculators use the compounding interest formula to calculate the future value.
Benefit: Simple SIP calculators are extremely easy to use, as you only have to enter the SIP amount, rate of return, and investment tenure. This makes them ideal for first-time investors.
2. Step-up SIP calculators
Once you start investing in mutual funds through SIPs, it is often recommended that you increase the investment amount by a certain percentage (typically 5-10%) every year. If you intend to increase the SIP amount gradually, a simple SIP calculator will not suffice. For this purpose, you can use step-up SIP calculators, which provide more accurate results.
Benefit: If you plan to increase your SIPs by a fixed percentage every year, you can use step-up SIP calculators, as they give accurate estimates.
3. Goal-based SIP calculators (Reverse SIP calculators)
Goal-based SIP calculators are handy tools that help you find the ideal SIP amounts based on your objectives. Unlike simple SIP calculators, these require you to first enter your target corpus, expected rate of return, and investment tenure. Based on the target corpus, these calculators provide the ideal SIP amount.
Benefit: For those looking to start SIPs for a specific purpose, goal-based SIP calculators help narrow down the SIP amount. Whether you wish to accumulate a corpus for the downpayment of a house, buy a new car, or plan an extravagant wedding, goal-based SIP calculators help you fix the SIP amount. Moreover, these calculators also extend the EMI estimation feature, which allows you to estimate your EMI liabilities for purchases made from online marketplaces or offline stores.
4. Inflation-adjusted SIP calculators
An SIP + inflation calculator takes inflation into consideration while calculating the target amount. It takes into account the impact of inflation on your future returns. For example, if the rate of inflation is 6%, it could eat up around 5% of the returns generated by SIPs. For this purpose, you must consider inflation when calculating SIPs, especially for an objective you wish to accomplish over several years.
Benefit: Inflation affects your SIP, as the value of money earned through SIP investments decreases over time. For example, if the SIP offers returns of 12% but inflation is 6%, the net return is only 6%, which is calculated by inflation-adjusted SIP calculators.
5. Tax-adjusted SIP calculators
If you wish to calculate your post-tax returns, you can use tax-adjusted calculators. These tools also consider the tax implications, such as the capital gains tax on your SIP returns.
Benefit: The amount of tax you pay on your SIP returns can impact the target amount. With a tax-adjusted SIP calculator, you can know how much you need to invest to achieve your goal or objective after tax deductions.
6. Lumpsum and SIP growth calculators
If you want to combine monthly SIPs with a lumpsum investment (initial investment), you can use the SIP + lumpsum calculator. You must input the initial investment amount, SIP amount, rate of return, and period of investment while using the calculator.
Benefit: These calculators are extremely helpful for investors who wish to invest a lumpsum amount upfront and subsequently make regular monthly contributions.
Final thoughts
SIPs are powerful vehicles that allow you to grow your corpus over a specified period and benefit from rupee-cost averaging (RCA) and the power of compounding. Depending on how you invest and the investment purpose, you can use any of the aforementioned SIP calculators to make well-informed investment decisions. Using these calculators is quite simple; you must enter the SIP amount, target amount (if applicable), rate of inflation (if applicable), rate of return, and period of investment.