How Should You Calculate Your SIP Investment to Reach Your Goals?

Mutual Fund SIP (Systematic Investment Plan) has become one of the most popular investment options among all age groups. Calculating the SIP amount is like mapping a journey towards achieving your financial goals. Whether you are purchasing your dream car, funding your child's education, or building a retirement plan, understanding how much regular investment you need to make is essential.

Here in this article, let’s find out how you can determine your SIP amount using an SIP plan calculator to attain your financial goals and needs. Read along for further insights.

Steps to Calculate SIP Amount to Attain Your Financial Goals

Determining the right SIP amount is essential to attaining your financial goals and accumulating a sizable corpus over time. By following these steps, you can easily determine your SIP contribution and ensure a secure future:

1.    Define Your Financial Goals:

The first step in determining the right SIP amount is to clearly define your goals and objectives. A financial goal can be anything like buying a house, or a car, funding your child's education, building a retirement corpus, funding an international tour, etc. Make sure not to set any unrealistic goals, assess your current financial status and set your goals accordingly.

2.    Determine the Investment Duration:

Depending on the type of goal and objective, determine the duration of your SIP and type of fund. For instance, if it is a short to medium-term goal, such as purchasing a car, your investment duration should be around 4 to 6 years. Similarly, a long-term objective would require a longer duration.

3.    Select an Appropriate Fund:

Once you have determined a goal, investment duration and your risk tolerance, you must now choose a mutual fund scheme that can best fulfil these requirements. For instance, if you have a moderate risk tolerance and a medium-term goal, you can consider equity funds with lower risk like index funds, large-cap funds, etc. 

On the other hand, investors with higher risk tolerance might opt for mid-cap, small-cap, or sector-specific funds. Conservative investors can choose debt funds or a conservative hybrid fund to align with their risk profile.

4.    Estimate the Expected Rate of Return:

In this step, you must finalise a scheme among your shortlisted funds by checking out their past performance or historical returns. You can analyse the 1-year return, 3-year return, 5-year return or return since inception to get a better idea of the expected rate. Please note that past performance does not guarantee the returns, but it is a type of return you can expect.

You can determine a fund’s inflation-adjusted return or the real rate of return by subtracting the current inflation rate from the expected rate of return. However, it's important to remember that past performance shouldn't be the sole factor in choosing a fund. Additionally, you must consider the scheme’s objectives, expense ratio, exit load, top holdings, etc., to make an informed decision.

5.    Choose Your SIP Amount Based on Income and Goals:

After finalising the mutual fund scheme, the next step is to determine your SIP amount. To do this, you'll need the following details:

●    The target corpus amount that you will require at the end of the term
●    Duration of investment in years
●    The expected rate of return; you can consider the 3-year, 5-year, or returns since inception based on your investment duration

6.    Use an SIP Calculator

Instead of calculating the SIP amount manually, you can use an SIP calculator that can help you calculate the same instantly. 

Steps to Use an SIP Calculator:

Here are the steps guiding you to use a Systematic Investment Plan calculator:

Step 1: Enter the SIP tenure in the calculator.
Step 2: Simply enter the expected rate of return delivered by the fund.
Step 3: Then, simply move the slider (left/right) to adjust the monthly SIP amount until the future corpus value displayed by the calculator matches your target corpus.

This step allows you to determine the monthly investment required to reach your financial objectives.

7.    Review and Adjust Regularly:

To stay on track with your financial goals, monitor and review your portfolio regularly, as your financial status may change over time. For instance, if your income increases, you can consider increasing your SIP amount. This can help you reach your goals more quickly and efficiently.

Conclusion

Planning your investments with the help of an SIP plan calculator is indeed a crucial step towards achieving your financial goals with confidence and precision. By considering the effect of inflation, regularly motoring and seeking professional advice if required, you can stay aligned with your goals and seamlessly fulfil them. With careful planning and disciplined investing, SIPs can be a powerful tool in building your wealth and helping you secure your financial future.

Frequently Asked Questions

1.    What are the benefits of using a SIP Calculator?

There are several benefits of using a SIP plan calculator including its accuracy, visual representation of expected returns, time saving and convenient process. Moreover, you can compare multiple scenarios by adjusting the amount, expected return and tenure to evaluate multiple investment conditions.

2.    What is the minimum and maximum amount that we can invest through an SIP?

The minimum amount of an SIP can be as low as ₹100 per month, and there is no upper limit to how much you can invest. Different mutual funds and AMCs (Asset Management Companies) may have different minimum investment amounts. 

3.    How to calculate CAGR in SIP?

You can easily calculate the CAGR of your SIP by using the formula: [(Final investment value / Initial investment value)^(1/n)] – 1. Here, "n" is the investment tenure in years.