One of the most important steps of financial planning is goal setting. Goal setting involves identifying your financial goals, categorizing them into short term, medium term, and long term, estimating the amount you need to meet each and then assessing the different investment options out there that can help you meet these goals in your desired timeline.
Mutual funds are one of the go-to options for goal-based investing in the country and rightly so since they are simple and effective. This is especially because the Systematic Investment Plan (SIP) option allows you to begin investing with as little as Rs 500 per month and makes investing more accessible. However, the process of laying out a financial plan and figuring out how to meet your goals can be an overwhelming one. And in such a case, a mutual fund SIP calculator comes in handy.
How a mutual fund SIP calculator works
When you use an online SIP calculator – you can find it on the official website of most fund houses – you need to enter three values. The first is your monthly SIP amount, the second is the expected rate of return and the third is the duration for which you will invest.
These three values will be used by the mutual fund SIP calculator to give you three important numbers. These include the total amount you will be investing over your chosen investment period, the estimated returns amount based on the expected rate of return, and your total mutual fund portfolio value at the end of the investment term.
So, it’s as simple as entering three values and then getting three output values as a result which helps you get an idea of how your investment will pan out and if it aligns with your goals.
Benefits of a mutual fund SIP calculator
- Allows you to budget effectively
The SIP calculator helps you know exactly how much of your monthly income you need to invest in the scheme to reach your financial goal. This allows you to budget your expenses accordingly and stick to them.
- Helps you see the benefit of long-term investing
When you use a mutual fund SIP calculator and try various investment horizons, you will realize that the longer you invest, the proportion of your returns vis-à-vis your invested amount keeps increasing. This is primarily because of the power of compounding.
- Gives you an idea of a realistic timeline
Everyone wants to meet their financial goals quickly but when they get down to mapping out a financial plan, they realize that it may take a lot longer. When you use a mutual fund SIP calculator, especially at the beginning stages of goal-planning, you will have a very realistic idea of how long it is going to take you to meet different goals.
- Helps you stay motivated
While it’s easy to falter and go beyond your budget to give in to short-term indulgences, using a SIP calculator helps you visualize your goal and how you can meet it in an objective manner. This can help you stay motivated and think about the long-term instead of only your short-term wants.
- Eradicates the need for physical calculation
One of the reasons why most people feel intimated by the idea of investing is the complicated mathematical calculations involved. However, when you use a SIP calculator, the need for figuring out the numbers manually is done away with, and you can get the results within seconds in a hassle-free manner.
The bottom line
Even if you are not sure about investing in mutual funds or don’t have your goals in place yet, try using a mutual fund SIP calculator. Try various combinations of the monthly SIP amount and the investment duration to see what best works for you. This could be a great starting point for beginning goal-based investing.