Mutual funds have become a prominent investment tool among a large set of investors because of their ability to deliver returns better and any of the current traditional investment avenues. These are market linked schemes that pool funds from investors sharing a common investment objective and invest the accumulated sum across money market instruments and asset classes. Mutual funds do not offer guaranteed returns, but they have the potential to deliver decent returns in the long run and help investors with such long term financial goals like retirement corpus, corpus for one’s wedding, education for someone’s higher education, or any such long term goals that can only be achieved in the long run.
And one of the best ways to invest in mutual funds targeting such long term financial goals is by starting a SIP.
What is a SIP?
Also referred to as the Systematic Investment Plan, a SIP is an investment tool that lets retail investors save and invest a fixed sum at regular intervals. There is a lot of confusion among investors who believe that SIP and mutual funds are one the same thing. This is not the right information as SIP is just one of the two ways in which one can invest in mutual funds (the other being lumpsum). SIPs can be monthly, quarterly, biannually, or yearly. But since most of the individuals are young professionals, they prefer investing a portion of their salary monthly.
There are several benefits which SIP offers, and the power of compounding and rupee cost averaging are two of the primary ones.
Rupee cost averaging allows the investor to reduce his or her total cost of the purchase in the long run. Since the mutual fund NAV fluctuates from time to time when the NAV is low investors can buy more units. Similarly, when the NAV of the mutual fund goes up investors buy fewer units through their SIP investments. This process is referred to as rupee cost averaging and in the long haul allows the investor to buy more units and reduce their overall investment cost.
The power of compounding is another advantage thatsips investing offers. When you invest in mutual funds via SIP periodically you are building are gradually building a corpus. Your invested amounts continue to earn interest depending on how the mutual fund performs over time. When this interest earned is reinvested back in the mutual fund and starts generating interest of its own, compounding is known to come into effect.
If you want to know who much exactly you need to invest regularly in mutual funds via SIP to achieve your ultimate financial goal, then you can take the help of the online SIP calculator.
What is a SIP calculator?
A SIP calculator is a free online tool that any investor can use to determine the total returns which they can earn by systematically investing in mutual funds via SIP for the defined duration. There are two ways in which you can use the SIP calculator –
If you know the amount that you will be investing then just put that amount and also mention for how long you will be investing that sum and also the expected rate of return.
If you know that corpus you want to accumulate, enter that and the calculator will show how much your monthly SIP should be toachieve that sum.
For example, if you want to accumulate Rs 5 crores in 15 years, then enter these details in the SIP calculator along with the expected rate of return. Let us assume 10 percent annual returns.
According to this simulation, a monthly SIP of Rs 1.2 lakhs will help the investor achieve the corpus of Rs. 5 lakhs in the next 15 years.