Everything That You Need To Know About SIP Calculator and SIP Top Up Calculator

We often rely on our long-term investments to achieve our life’s ultimate financial goal. A financial goal may vary from investor to investor. For some, it might be building a commendable retirement corpus, for others, it can be long term wealth creation, whereas for someone else it could be building a corpus for their daughter’s destination wedding. The journey to wealth creation must be supported with adequate financial planning and systematic and disciplined investing.

 
If you too have a financial goal that you want to target, you can consider doing so with mutual funds. Mutual funds are a pool of professionally managed funds that invest in a diversified portfolio of securities across asset classes. Mutual fund schemes invest in stocks, bonds, currencies, gold, international markets, and other money market instruments. They offer professional fund management through a team of qualified fund managers that actively manage the scheme’s portfolio and take investment decisions that allow the mutual fund to generate rewarding results. Having said that, returns from mutual fund investments aren’t guaranteed and hence, investors should always invest as per their risk appetite, investment horizon, and ultimate financial goal. 

Understanding SIP in Mutual Funds?

If you are someone who is already investing in mutual funds, you may know what SIP is. However, it is ok to have doubts about certain mutual fund tools as even seasoned investors sometimes have a tough time understanding certain mutual fund features. 

A Systematic Investment Plan (SIP) is a simple and effective way to invest your hard-earned money in a mutual fund scheme. You might not be aware but there are two primary ways in which one can invest in mutual funds. They have the option of making a lump-sum investment or they can even consider the SIP option. A lump sum investment is when you invest the entire sum of money you plan to invest in one go. This could be his / her entire investment sum or a portion of what they wish to invest over time. One advantage of a lump-sum investment is that you could take advantage of the current market conditions if they are favorable. However, someone who makes a lump-sum investment in an equity fund may end up exposing their entire investment sum to the dangers of market volatility. 

On the other hand, a Systematic Investment Plan allows an individual to invest small, fixed sums at periodic intervals. This could be monthly, weekly, quarterly, biannually, or annually. However, for someone who is a salaried individual, a monthly SIP seems like a relevant option as this allows them to save and invest a fixed sum from their regular income. 

To understand the total capital appreciation that one’s SIP investments may fetch over a stipulated time, investors can use an online SIP calculator.

Understanding the SIP Calculator

A SIP calculator is a free online tool that estimates the estimated value of the investor’s funds assuming a rate of return and defined investment duration. The SIP calculator is an easy-to-use tool that any layman can use by inputting a few simple details. This calculator frees the individual from labor-intensive calculations and computes results in a jiffy. SIP is a tool that allows one to make monthly investments in a mutual fund scheme and hence, the task of doing manual calculations using a pen and paper can become tedious. 

Here’s how the SIP calculator by Axis Mutual Fund works. But before that, you must know that the SIP calculator offered by Axis Mutual Fund works in two different ways.  This calculator has two unique features – 

•  I want to invest 
•  I know my goal

First, let us understand how the ‘I know my goal’ feature works. If you have a clear understanding of what your ultimate financial goal should be, you should use this feature. The widget works once you enter a few details. Once you are on the SIP calculator’ I know my goal’ page you will see the following options where you need to input the necessary details.
‘Your target goal amount’ – Here, you must enter the ultimate financial goal that you want to achieve at the end of your SIP investment journey. 
‘By when you need this’ – Here, you must enter the number of months you have in hand to achieve the goal
‘Expected rate of the return’ – Here you must enter the assumed rate of returns

Once you enter all the necessary details, the SIP calculator will display the following results –

Invested amount – This is the total amount that you will invest through monthly SIP investment over a period of time
Target amount – Your goal amount
Monthly amount invested – The SIP sum that you must invest regularly to achieve the financial goal
Here’s an example illustrating how the ‘I know my goal’ feature works –
Let us assume that you wish to build a  corpus of Rs1.5 crores. You have 120 months to achieve the corpus. We will assume an 8% rate of return 
In the SIP calculator’s ‘I know my goal’ option, enter the following details –
Your target goal amount – Rs 1.5 crores
By when you need this – 120 months
Expected rate of the return – 8%
The SIP calculator will compute and display the following details –
Invested amount – Rs 98.93 Lac
Target amount – Rs 1.5 Cr
Monthly invested amount – Rs 81,991
Your ultimate financial goal of Rs 1.5 crores can be met in 120 months if you start a monthly SIP of Rs. Rs 81,991. You will only invest Rs 98.93 Lac and benefit from the interest accrued over the years. 

Now, let us find out how the ‘I want to invest’ option works –

Let us assume that you want to invest Rs 50,000 every month in a mutual fund scheme and you have an investment time horizon of 12 years. Once again, let us assume 8% rate of return.
I wish to invest per month – Rs 50,000
Number of years – 12
Expected Rate of Return – 8%
The SIP calculator shall display the following results –
Invested amount – Rs 72 Lac
Wealth created – Rs 1.20 Cr
Assuming 8% returns, a monthly SIP of Rs 50,000 for 15 years will add up to an investment amount of Rs 72 Lac whereas the wealth created may amount to Rs. 1.20 Cr. 

Understanding SIP Top-up Calculator?

Now that you know what a SIP calculator is and how it works, let us move on to the SIP top-up calculator. This calculator helps investors who opt for the SIP top-up facility. What happens is that when an individual starts a monthly SIP, if the scheme in which they’ve invested produces results as expected, they may want to increase the monthly SIP sum every 12 months. Such individuals may opt for the SIP top-up facility where they increase their monthly SIP sum by a certain percentage for a specific duration. 

A SIP top-up calculator is designed to allow such investors to determine the future value of their SIP investments taking the annual SIP top-up into consideration. 

Here’s an example illustrating how the SIP top-up calculator works –

Say you want to build an education corpus of Rs 35 Lacs so that you can fund your daughter’s goal of becoming a medical practitioner. She is currently 12 years old and is most likely to get into a medical college at 18. Over the years you have saved Rs 10 Lacs for her higher education but are still short of Rs 25 Lacs. You want to invest in mutual funds to achieve this goal but aren’t sure how much to invest monthly. 

To achieve this goal, you would have to invest Rs 25500 every month via SIP, assuming a 10% rate of return. However, the top-up SIP calculator will help you understand that a monthly SIP of  Rs21,511 is enough to achieve the same goal ,provided, you increase the monthly SIP sum by 10% annually. 

Although both the online mutual fund SIP calculator and the top-up SIP calculator can both be helpful tools to determine the assumed returns, it is equally essential to understand that these calculators do not take certain factors like exit load and an expense ratio of the mutual fund scheme. Also, since these are assumption-based values, the actual returns may vary. Also, these calculations do not take any tax related calculations into consideration while computing results. 

SIP is a way to invest in mutual funds and using the calculators might help investors understand their investment requirements and help them plan their investments strategically. Investors may be able to witness the compounding effect if they continue to invest in mutual funds via SIP on a regular basis. Also, SIP investing is flexible which means that the investor can stop their investments at any given time. SIP investing can also result in rupee cost averaging where the investor is able to average the purchase cost of units, thus lowering the investment amount and maximizing the total value of their SIP investments over the long run.

Disclaimer: The calculator alone is not sufficient and shouldn't be used for the development or implementation of an investment strategy. This tool is created to explain basic financial / investment related concepts to investors. The tool is created for helping the investor take an informed decision and is not an investment process in itself. Mutual Fund does not provide guaranteed returns. Investors are advised to seek professional advice from financial, tax and legal advisor before investing.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully