Imagine a future where the purchase of your dream home or comfortable retirement is no longer a distant dream but a reality, and all this by consistently investing in mutual funds through systematic investment plans (SIPs). However, creating long-term wealth requires precision, a clear understanding of your financial objectives, and a roadmap to achieve them. This is where an SIP calculator can be useful.
An SIP calculator can help you make wise and calculated decisions regarding your investments, which is crucial in achieving the ambitious goals you have set for your future. From better financial planning to easy comparison of different mutual fund schemes, let’s explore how an SIP calculator can help you become a smart investor.
1. You can set a realistic amount to invest in mutual funds
An SIP calculator can provide greater clarity into your investments, as it allows you to evaluate your investments more accurately and realistically. You can use the tool to figure out an appropriate amount to invest based on your budget, find out the expected return at maturity, and determine the impact of adjusting the amount over time.
With access to such precise information at your fingertips, your mutual funds investment journey becomes more streamlined and disciplined as you can strategize your financial planning according to your goals and risk appetite.
2. Facilitates comparison of mutual funds
An SIP calculator allows you to evaluate different investment scenarios. Instead of relying on guesswork, you can adjust the variables like the investment amount, tenure, and expected rate of return to check how they influence the maturity amount.
For example, if you want to know whether investing Rs 6,000 monthly for 10 years or Rs 12,000 per month for 7 years offers better returns, simply enter both numbers into the calculator one by one and you can make side-by-side comparisons with each individual outcome.
Furthermore, the tool also helps in understanding the long-term profitability of various investments, such as equities, ELSS funds, and bonds. By determining which SIP mutual fund has the potential to generate the desired returns at the end of the investment period, you can make better-informed decisions about the investment avenues that are suitable for your financial goals.
3. Enables goal-based financial planning
Most investors have specific financial goals in mind when starting their investment journey. Be it funding higher education, buying a house, or planning for retirement, an SIP calculator helps investors align their investment strategies to these objectives. This helps in allocating your funds strategically towards different goals and ensures your financial plan is aligned with your long-term aspirations.
For instance, if you have a 20-year investment horizon for retirement intending to save Rs 30,000 per month, an SIP calculator can help you calculate what returns you can expect at maturity. This way, you can allocate funds over different types of mutual funds accordingly.
4. Eliminates human bias
Emotional biases can lead to hasty decisions that might not be in your best interests. An SIP calculator eliminates the influence of human bias on your investment decisions and makes the decision-making process more objective and data driven.
For example, instead of relying solely on instincts when entering into an equity market, you can use an SIP calculator to compare different equity mutual funds along with their returns and see how they align with your goals. The insights and calculations provided by the calculator can empower you to make rational decisions, thereby, preventing emotional influences from affecting your investment strategies.
To wrap up
Most financial experts emphasise the significance of using an SIP calculator for better investments, as it allows investors to craft a customised investment strategy that aligns with their unique financial objectives, risk appetite, and timeframe. Meanwhile, it is important to input accurate data into the calculator, as any mistakes may provide incorrect results leading to loss of investment opportunities.