The idea behind Systematic Investment Plans is to invest small sums of money regularly in a Mutual Fund. It accumulates into a large amount over time, used to meet various financial goals, such as retirement, children’s education, etc. The accuracy of the calculator is a topic of debate among investors.
The SIP calculator is a simple tool allowing investors to calculate the expected returns from their Mutual Fund Investments. It considers the amount invested, the investment term, the frequency, and the rate of return. You can calculate the approximate returns based on these inputs, which appear as a graph or table.
How does it work?
The rate of return used in the calculation should be realistic, as it will likely influence the accuracy of the returns calculated by the tool. For example, if the rate of return used is too high, the returns calculated by the tool will be overstated, and vice-versa. The accuracy of the calculation depends on the following factors:
Rate of return
It is one of the most critical aspects when calculating SIP. The SIP accuracy is directly proportional to the rate of return. While the calculator’s rate of return is estimated, the actual amount may differ. Using this tool, you cannot get the exact amount earned through returns as it depends on market conditions.
Investment tenure
Investment tenure is another important factor affecting the calculation of SIP. The longer the investment tenure, the higher the chances of the actual returns deviating from the estimated returns. While investing in any type of Mutual Fund, including Hybrid Funds, you should assess your goals and risk appetite.
Market conditions
The stock market is volatile and can significantly impact the returns of a Mutual Fund. The accuracy of the SIP calculator may be affected if there are changes in the stock market conditions. Therefore, predicting the returns becomes futile in such cases. You should refer to the offer documents carefully before investing.
Fund management
The Mutual Fund’s performance also depends on the fund manager and their investment strategy. If the fund manager changes their investment strategy, it can impact the returns, affecting the accuracy of calculating SIP. Therefore, getting regular updates from an experienced fund manager is a boon to investors.
Expense ratio
The expense ratio refers to the cost of managing a Mutual Fund. The higher it is, the lower the returns, affecting the calculator’s accuracy. You can easily access it online through your AMC’s website or app and use it endlessly throughout the day.
Points to note
Calculating SIP accuracy depends on various factors. While it provides a rough estimate of the returns, it may only sometimes be accurate. The actual returns may deviate from the estimated returns due to market conditions, fund management, expense ratio changes, etc.
Final words
The Mutual Fund calculator is one of many information sources for investment decisions. Before investing in Mutual Funds, consider other factors, such as the investment horizon, risk tolerance, etc.
