When we organize our finances well, we can make our dreams a reality. Systematic Investment Plans (SIPs) are a great tool for establishing good money habits and amassing assets for the future. SIPs are a quick and easy way to start saving money and allow you to take baby steps toward constructing a large, well-organized corpus.
This article will explain what “SIP” stands for, how it operates, and what advantages it offers.
What is SIP?
A SIP stands for a Systematic Investment Plan. They are automatic monthly payments. We use them as a method of investing in mutual funds. You can set up a long-term investing strategy using SIPs to help you reach your financial goals. Choose a mutual fund plan, goal, and investment amount you want to make.
The payments you make into your SIP get invested in a mutual fund portfolio. A financial institution manages that portfolio.
Take the hypothetical case of someone who wants to invest Rs. 500 every month for five years. Setting up a SIP can make investing in a mutual fund easier. Which, in turn, will automatically deduct monthly payments. Likewise, you can choose how often to contribute. Typical SIP mutual fund subscription durations include weekly, quarterly, monthly, yearly, etc.
How Does a SIP Work?
There are a few fundamentals of SIP that you should understand before you set it up.
A SIP investment goes through three distinct phases. These phases go from the first deposit through the final investment in a mutual fund plan.
Picking a Mutual Fund Plan
Picking a mutual fund plan to put your money into is the first step in setting up a systematic investing plan.
Choose Your Investment Frequency
The next step in starting a SIP is choosing how often you want to make investments. For investors who get a salary, the most typical option is a monthly payout schedule. You can also invest weekly, quarterly, semiannually, or annually.
Start Your SIP With a Mutual Fund Plan
Once you’ve selected a mutual fund, establishing your SIP couldn’t be easier. Simply go to your preferred mutual fund on a SIP platform and then click on the “invest” button. If this is your first time investing, in that case, enter your bank information and SIP contributions and complete your KYC.
Automatic Debits and Unit Allotment Based on NAV
After completing all the steps, funds will automatically be deducted from your account. That amount will be deducted monthly from your account on the specified date. Also, a computer program handles this procedure. You can create a regular schedule for automatic withdrawals from your bank account.
When your account gets debited, your money will get invested as soon as possible. You will also get a NAV-calculated allocation of units as part of the confirmation. Unit allotments are subject to daily changes in the NAV. So, the amount you get for your contribution may fluctuate.
What is a SIP Calculator?
These days, SIPs in mutual funds are among the most common ways young people build wealth. SIP calculators help investors determine what their investment will be worth.
A monthly SIP gives you a general estimate of the maturation amount. This maturity amount depends on the anticipated yearly return rate. It is helpful to use an online SIP calculator, which provides an estimate of the returns you can expect to receive at the end of the investing period.
You can use this tool to estimate how much you’ll have gained and how much you’ll make from your monthly SIP investment. But, the SIP calculator doesn’t explain the departure load and expenditure ratio.
Benefits of a SIP Calculator
Now that we know what a SIP calculator is and how it works, let’s highlight its advantages:
- The projected returns that you’ll earn against the modest monthly investments can be quickly and easily calculated by using the calculator. As a result, long-term financial objectives can be factored into investing decisions.
- Other than the monthly investment amount, investment term, and return percentage, no other information is necessary. This means that the interface is simple to use.
- There is no cost associated with using the calculators since they are available online.
How Can a SIP Calculator Help You?
A SIP calculator splits the long-term value of the SIP into the principal and the expected rate of return. Hence, you can use a SIP calculator to know how your investments will rise based on certain factors.
Calculators figure out the yield based on how long the investment is held, the return on capital, and the SIP payment.
The SIP calculator lets you take inflation into account, along with your savings rate. To achieve this, you can calculate the actual rate of return on your investment. But use the desired real rate of return and the current inflation rate.
How to Use a SIP Calculator?
The usage of SIP calculators varies from calculator to calculator. But, using a SIP calculator is a piece of cake. You only need to put in the following:
- The monthly payments you’ll contribute towards the SIP
- The amount of time you wish to start a SIP for
- How much return do you expect? (%)
Put in these values, and the calculator will do the rest!
A SIP is a method of investing on a regular basis over time. The potential for long-term wealth accumulation via a SIP is strong. Plus, the plan’s ease of use makes it attractive. The magic of compounding and rupee cost averaging works in your favor. The Piramal Finance blog raises the level of investor consciousness, which in turn helps investors learn more about mutual funds. Contact us to learn more.