SIP calculator helps a mutual fund investor to find out the amount required for meeting one's investment goal.
A Systematic Investment Plan (SIP) is an investment option offered by mutual funds to an investor where one can invest a fixed amount at fixed interval. In other words, SIP is a facility offered by mutual funds to an investor to invest in a disciplined manner. However, a smart mutual fund SIP investor looks at one's investment goal and the amount required to meet that goal before starting a SIP. For such smart investors, mutual funds SIP calculator is an important tool as it gives investor an idea about the maturity amount one would get after a particular time horizon
As mentioned above, mutual funds SIP calculator helps an investor find out the amount required to meet one's investment goal in a particular time horizon. However, it doesn't calculator the expense ratio, entry load, etc. So the figure given by the SIP calculator is not an exact number but an estimated amount one would get. But it is definitely a useful tool for an investor while starting a SIP because it makes you know whether you would be able to meet or come around your investment goal or not? It helps an investor know about the wealth gain and an average return that one can expect from one's investment.
A mutual fund SIP calculator works on a fixed formula which is as below:
M = P [ (1+I)^n-1 ] x (1+I)/I.
Here, M is maturity amount one can expect;
P is SIP amount;
I is periodic interest rate; and
n is investment period in months.
For example, if an investor invests Rs 1,000 per month for 2 years expecting 12 per cent annual return.
Then, I would be 12/(12x100) i.e. 0.01.
So, M = 1000 [ (1 + 0.01)^n-1 ] x (1+I)/I.
This means, one would get maturity amount of around Rs 27,243 at the end of 2 years investing Rs 1,000 per month.