Stepping into the mutual fund arena can be challenging for many investors. The first dilemma that they have to face is deciding between lump sum and regular or SIP mode of investment. While both are great methods but SIP is exponentially gaining popularity in the market. Due to its various benefits, investors, especially salaried professionals, are inclining more towards this investment method.Even various websites provide assistance to investors in evaluating returns with SIP calculator on this mode of investment.

If you want to learn more about SIP mode of investment and SIP calculators, read further.

What is SIP?

SIP (Systematic Investment Plan) is a method of making an investment in mutual fund schemes. In this, investors put a specific amount of money in the desired mutual fund scheme in a systematic fashion at regular intervals (usually monthly). This method of investment is similar to a recurring deposit (RD) in which investors deposit a pre-decided sum of money at regular intervals in their RD account. However, while return on RD is fixed and predictable, the same cannot be said for SIP-based investments as the returns are dependent on various market factors.

What are the benefits of investing through SIP?

The benefits of investing via SIP include the following:

  • In lump sum investment, investors need to speculate trends and wait for themarket to dip so that they can make investment at the best value. Investors investing in mutual funds through SIP don’t need to do thatregularly as a specific amount of money continues to be invested in the market.
  • In SIP-based investment, the fund is simple – if the market dips, more units are purchased and if they soar high, less units are bought. This does not guarantee profits but in the longer run minimizes the impact of investing in volatile markets.
  • SIP-based investments also bound people to follow a routine, which makes them disciplined. Investment discipline improves investors’ determination and concentration; traits that are essential to stay invested and create wealth.
  • SIP-based investment is convenient for investors as it allows them to automate their payments from their bank accounts. With this facility, they no longer have to fret about missing out on the payment dates and keeping a track of their investment every time. Some asset management companies also offer the convenience of transacting online.

What is the difference between lump sum and SIP?

Lump sum and SIP are different methods of investing in mutual fund schemes. Both modes of investments are beneficial depending upon an investor’s requirements and market conditions. In lump sum-based investment, a pre-defined sum of money is invested all together. If the market conditions are suitable and the required money is available then the lump sum mode of investment is appropriate for investors. If you’re salaried professional then such mode of investment can strain your monthly finances. Investors who cannot shell out money all at once for investment must go for SIP. It is simpler for investors to keep a small amount aside every month for investment. In addition to this, in lump sum-based investment, all units bought have the same price;therefore, the profit/loss experienced at the time of liquidating units will be exactly same. Whereas in SIP-based investment, units are bought at separate time period. Therefore, the rates for each unit will be different and resultantly, the profits/losses experienced at the time of liquidating units will also bedifferent.

What is SIP calculator?

SIP calculator is an online tool that helps investors to get estimation on the SIP returns at the end of a specific tenure for a specific sum of money. The tool is extremely useful for every SIP mutual fund investor especially those who have a financial goal(such as creating an emergency fund) behind making an investment as it helps them estimate the amount they should invest to get the required corpus.

What are the benefits of SIP calculator?

The benefits of SIP calculator are:

  • Helps investors get benefits from mutual fund investments: The use of SIP calculator helps investors know their future returns, which further helps them make future investment plans.
  • It gives results quickly: Manually calculating SIP returns consumes a lot of time. It is not recommended especially to those who need to apply formulas multiple times. SIP calculators make calculations easy and less time-consuming. It gives results as soon as the details are entered by an investor.
  • It gives accurate results: Estimating SIP returns is difficult. The formula is complex, which makes manual calculations more prone to errors. SIP calculators are created by experts; therefore, it is unlikely that the results will be inaccurate.
  • It can be used multiple times without any charges:SIP calculators are absolutely free of cost. They can be used as many times as you want without having to worry about charges or subscriptions.

How to use SIP calculator?

Using SIP calculator is no rocket science. Its interface is simple and thus extremely easy to use. The tool has some fields in which investors are required to input data. The tool will then use that data to give you the final value of your investment. The key steps to use SIP calculator are:

Step1: Enter the monthly SIP amount that you can invest in the mutual fund scheme.

Note: the minimum value for investment is Rs.500/-.

Step 2: Enter the expected rate of return (per annum) on your investment. Now this cannot be determined with certainty but can be estimated on the basis of the track record of the fund.

Step 3: The third or the last variable that needs to be entered is the investment tenure. The time period till which you want to keep investing in the mutual fund scheme must be entered in this field.

Note: Mostly, SIP mutual fund schemes have a minimum term of 6 - 12 months.

Now on the basis of the values given by the investor, SIP calculator will compute and provide the final value of your investment at the end of the investment tenure. If you want to change the variables, you can do so either by retyping the values or using a corresponding slider. Another thing to keep in mind is that as of now SIP calculators do not take capital gain tax or possible inflation into account. Therefore, you might also have to consider results from SIP calculator with inflation rate.