Mutual Fund SIP Calculator: Understanding Its Working and More

There is only a limited knowledge about SIPs in the country. This delay in knowing the workings of investment plans is why we miss out on significant monetary benefits. Considering it’s never too late to start with something that guarantees huge future benefits, let us learn the nitty-gritty of SIPs. As you further read our article, you will also get in-depth information on mutual fund SIP calculators that you must use to make your investments easy. 


What is SIP? 

A Systematic Investment Plan (SIP) is an investment option that aids you in investing in a mutual fund scheme by paying in a staggered manner, i.e., over a period. These plans are majorly equity mutual fund schemes.

Most experts advise investors against investing a lump sum and suggest staggered investment regularly. This payment method at regular intervals also helps mitigate security market risks.

Another advantage of SIPs is that it’s convenient for salaried individuals. This section of investors, because of the way they receive their compensation, can’t keep out a considerable sum at once.

Note that a fixed amount is invested under SIP over a period, which can be weekly, monthly, or quarterly. A mutual fund SIP calculator predicts return based on the payment of this amount.


What is a SIP Calculator? 

Why do you think SIPs have become a popular form of investment among millennials these days? It’s the huge returns that are a reason of its popularity. But how does one calculate these returns? Simple, by using a mutual fund SIP calculator. 

A SIP calculator is again a tool that furnishes an expected return on SIP investment. It helps investors understand the cash value they can receive from their mutual fund scheme. This calculation is done before one initiates the investment.

The potential investors must consider that the monetary gain estimated by the mutual fund SIP calculator is only a projected return value. The actual value may change based on several factors.


Factors Affecting Mutual Fund Returns

The performance of your mutual fund plan may vary despite the SIP calculator projecting a particular maturity amount because of the following factors:

Performance of Securities: A mutual fund doesn’t comprise one-single security. It’s a group of different types of securities like stocks and bonds. Therefore, the ultimate performance of your policy will be in proportion to the performance of these securities.

Pro Tip: You can always choose a diverse fund portfolio. In this case, you can limit the effect of an unstable market on your investment. A mutual fund SIP calculator may project a closer return value to the actual return received in the situation.  

Economic Changes: Ups and downs in a specific industry due to government rules can sometimes either boost or reduce a fund’s performance. 

Expense Ratio: Mutual funds are not managed by individual investors. A fund house operates them for you. For them to keep running your fund plan, you must pay specific fees and bear some expenses. These expenses and fees include shareholder fees, management fees, administration fees, and distribution fees, among others. 

It’s important to know that your net return will be the total return minus these expenses. The expense ratio of a mutual fund plan usually ranges between 0.5 to 3%. 

The mutual fund SIP calculator estimates the maturity benefit without considering the fees paid to fund houses. 

Variation in Cash Flow: Certain mutual fund plans may be able to interest a large pool of investors. It would mean a good cash flow, allowing the fund manager to invest in a wide range of securities. 

On the other hand, many investors may pull out of a scheme performing below expectations, reducing the cash flow, and damaging the return. This variation in the cash flowS can affect the mutual fund returns. 

Poorly Managed Fund: A fund with a wide range of investments will not necessarily yield positive results. A poorly managed mutual fund will not be able to give good returns. 

Summing Up 

A Systematic Investment Plan (SIP) is an excellent tool for investing in a mutual fund. Experts highly advocate this method over lump sum payments. Regular payments help develop saving habits and makes individual more financially disciplined. 

Despite the strong prediction of growing demand to invest in a mutual fund, it’s suggested that you keep yourself up to date with the amendments in rules as laid down by the Securities and Exchange Board of India (SEBI) to protect your investments better and lower the risks involved. You can also go through specific investment-related terms by SEBI to become more equipped before investing. 

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