Guide to use SIP calculator to set your Financial Goals

Published On: 30-Oct-2019

Systematic Investment Plan (SIP) allows you to invest a fixed amount into mutual fund schemes on a pre-determined periodic frequency. You can instruct the bank to auto-debit the from your account specified dates and invest in the pre-specified mutual fund scheme. This investment cycle happens automatically on a recurring basis irrespective of the market condition. This helps an individual to consistently move towards creating an investment corpus and take a step closer to achieve his/ her financial goals. 

Mutual Fund SIP Calculator

1.Setting your financial goals is an essential step in the 

financial planning process, which helps you determine the ultimate destination. Here is a simple method that will help you achieve your financial goals:

2.Determination of Financial Goals

 - This step starts with determining the financial goals. This could be short term or long term. Short term goals may include family vacations, renovating the house, buying a new car, etc., while long term goals may include saving for a new home, child’s education, child’s marriage, retirement planning, etc. 

3.Quantification of Financial Goals 

- Once the financial aspirations are determined, the next step is to quantify such goals. While you are quantifying the goals, make sure you adjust the current expenses for the impact of inflation, to reflect a realistic financial goal. If you do not adjust the current costs for inflation impact, you may fall short of fulfilling your desires, even while you may have achieved your financial goals. 

4.Building a Roadmap to Achieve Financial Goals

 – Post the quantification of goals, it is paramount that you build an investment roadmap to achieve the goals within a certain time limit. This will include regular investing in mutual fund schemes that suit your risk profile. You can also use a mutual fund SIP calculator to determine the monthly savings required to achieve your financial goals. 

5.Implementing the Financial Roadmap

 – The last but the most important step in your journey to achieve financial goals is implementing the roadmap. While the above three steps are all theoretical, this step helps you move towards your financial goals effortlessly as you make regular savings and accumulate the desired investment corpus. 

While you are making the roadmap, it is essential that you determine the amount of monthly savings required with reasonable and realistic assumptions. For example, assuming 12% returns for a 1-year investment horizon may not be justified for debt funds, but the same may be considered reasonable for a 10-year investment horizon in equity funds. Once you have the time horizon, expected rate of return and the corpus required, you may quickly arrive at the monthly savings needed to achieve the financial goal. Alternatively, you may arrive at the financial corpus, which may be achieved with a certain amount of monthly savings. 

Mathematically expressed, here is how you may calculate the future value of your 

SIP investment:

Future Value of your SIP = P [{(1+r)^n-1}/r] * (1+r),

Where P = Monthly SIP Instalment

r = Monthly Returns 

n = No. of months of SIP investments

 SIP Calculator may help you calculate such amount easily if you are aware of the other three inputs. For example, if you want to know how much would amount you may accumulate through a monthly SIP of Rs. 10,000, with investment period ten years and expected rate of return 12% per annum, SIP Calculator will let you know that the portfolio will be valued at Rs. 23.23 lakh. 

You may use this simple calculator to know if the financial goals are within your reach or not with the currently possible monthly savings. It may also help you measure the desired performance with the actual performance, ensuring timely action in case of any gaps to achieve the financial goals. 

Disclaimer:

The chart/information shared above is for illustrative purposes only and should not be construed as advise. The above is to illustrate the concept of asset allocation. There is also a possibility of the expected event not happening or some other unforeseen event that may affect the future performance of asset class. Investors are requested to note that there are various factors domestic and global that can have impact on performance of the asset class mentioned in the article. Information given is available in public domain.