A Systematic Investment Plan (SIP) calculator is an online tool that calculates the return on your SIP investment based on an estimated rate of return and the future value of your investment after a certain number of years.

The manual computation can be slightly labor-intensive since SIPs typically involve a monthly payment.

Since the holding period for each monthly contribution would be different at any given point in time, the returns for each of these payments will differ as well.

How Does SIP Work?

SIP works by investing a fixed amount of money at regular intervals in a mutual fund. The investor chooses the amount and the frequency of investments. The amount invested is deducted automatically from the investor’s bank account and invested in the chosen mutual fund.

In the case of mutual fund SIP, the investor receives units of the mutual fund based on the prevailing Net Asset Value (NAV) of the fund on the day of investment.

Over time, the investor builds a portfolio of mutual fund units that appreciate or depreciate in value based on the performance of the mutual fund.

Benefits of SIP

SIP offers several benefits to investors, including:

1. Disciplined Investing: SIP helps investors invest regularly and systematically, thereby promoting discipline in investing.
2. Long-term Wealth Creation: SIP enables investors to create wealth over the long term by taking advantage of the power of compounding.
3. Cost Averaging: SIP helps investors to average out the cost of investing by investing at regular intervals, which reduces the impact of market volatility on the investment.
4. Flexibility: SIP offers investors the flexibility to increase, decrease, or stop their investments at any time.
5. Diversification: SIP enables investors to diversify their investments by investing in a range of mutual funds with different investment objectives.

Benefits of SIP Compared to Lumpsum?

First of all, Lumpsum investment means investing a huge capital at once rather than several payments of smaller amounts.

• You don’t need to speculate on timing the market, invest on a predetermined date in each month (hassle free).
• Overcome market fluctuations. A little to no impact of market volatility.
• SIPs can be started/updated/stopped at any time. Flexible to use.
• SIPs can be automated.

Risks of SIP

Like any investment, SIP also carries risks, including:

1. Market Risk: The value of mutual fund units can fluctuate based on market conditions and the performance of the mutual fund.
2. Liquidity Risk: Mutual fund units may not be liquid, which means that it may be difficult to sell them quickly.
3. Credit Risk: Mutual fund investments are subject to credit risk, which means that if the issuer defaults on its debt, the value of the mutual fund may decline.

Conclusion

SIP is a popular investment tool that offers several benefits to investors, including disciplined investing, long-term wealth creation, cost averaging, flexibility, and diversification. However, SIP also carries risks, including market risk, liquidity risk, and credit risk. Investors should carefully evaluate their investment objectives, risk tolerance, and investment horizon before investing in SIP.