An SIP is a systematic investment plan that allows you to invest a fixed amount periodically in the Mutual Funds. Period may be of month, quarter etc.
SIP calculator is an app which helps you to compute return on your SIP. Let’s try to understand how to use it.
- Enter the amount which you want to invest per month in the box against the MONTHLY INVESTMENT title.
- Enter the number of year in period.
- Enter the rate of return which is expected by you.
- Against column of Inflation, enter the digit of inflation rate.
After entering all field, you will get outcome as per under.
Column of Total Investment shows the amount which will be invested by you during the total time period.
Column of Net Return shows the amount which you will get at the end of time period.
Column of Current Value (with inflation) shows you the net return at current price.
SIP calculator calculates SIP according to compound interest.
Some SIP calculator may have advanced features which show you comparative study of your SIP returns vs. other investment like fixed deposit.
How to invest in SIP?
You can invest in SIP monthly. You can submit pre-dated cheques or authorize your bank account for auto debit of SIP amount per month.
SIP is safer than lump sum investment.
Any investment market, may be it equity market, debt market or money market is generally volatile. Mutual Funds also invest in these markets. So lump sum investment has risk of loss. But to invest in SIP is always prudence act. You invest per month in SIP without timing markets. So if the markets are high, you buy fewer units of mutual funds but if the markets are low, you buy more units of mutual funds for the same amount. SIP helps you to control volatility.
SIP and investment period
The short term investment in SIP may bring you higher return but it comes with added higher risk. To get steady and higher return on SIP with low risk, you should invest in SIP for 5 year or more. The longer the time period, the lower the risk will be and higher the return will be.
Three fundamental benefits of investing in SIP
- To invest in SIP, you will need no knowledge, research or technical study of financial markets. You only have to choose automated SIP, nothing else. Thus, investment in SIP is very easy.
- The amount of investment is constant in SIP without any concern of market trend. So the ecerage cost of investment will be lower.
- You should never take time off from your schedule to monitor market trends or your investment. You can monitor your investment at any time and at anywhere only by logging in to your profile in the Mutual funds.
Lump sum calculator is an app which let you determine the maturity amount of a present value lump sum investment (one time investment), after a fixed number of years.
You need following input data to compute the maturity amount of lump sum investment.
- Amount to be invested
- Number of years ( time period of investment)
- Expected rate of return
The lump sum calculator provides you the maturity amount and the earning on the investment.
Pros of lump sum investment method
- In some cases, you get pretty sum of money at one go. Followings are some examples of such cases.
- Salaried person gets yearly bonus
- Money received from sale of property/assets
- Money received from matured investment
- Money received as one time settlement of any dispute
In such cases, you can invest your precious money in mutual fund in one go (lump sum). It is not better to hold huge amount in bank account and invest in SIP from that money per month because you will lose difference of bank interest rate and expected return rate of mutual fund. Basically, rate of return of mutual fund is in two digits and bank interest rate is in single digit.
- Generally people believe that one has to invest per month in mutual funds. It is not true. Lump sum investment is boon for those who have irregular income and avoid to invest per month. People with irregular income can invest in mutual fund any time with small savings from their income. Most of lump sum scheme in mutual fund allows you to invest with minimum Rs 5000. You have to make payment only once so you will have no worry of future installments.
- A lump sum investor has always chance to change the amount being invested. So he can invest more money when markets are down and invest less amount of money when markets are up. A lump sum investor can take advantages from ups and downs of markets. So experienced and high net worth investors opt for lump sum investment.
- Lump sum investment is better for long term. Here long-term means more than 15 years. Lump sum investment can be made for goals like child’s marriage, child’s higher education etc.
Cons of lump sum investment method
- Lump sum investment is irregular investment. This method makes investor irregular and care free of regular savings.
- Lump sum investment is better for long term. But if you need fund in near future, the rate of return will be low in lump sum investment.
- In lump sum method, investor invests his money in one go, so there is chances of high risk. Suppose you invest Rs 10,000 and buy units of mutual funds. If the market declines more, you lose the chance of buying more units in the same amount. So in lump sum investment, investor has to time the markets properly before making investment.
Comparison between SIP and Lump sum investment
- The main difference between the SIP and lump sum method is that the timing of investment matters very much in lump sum investment while in SIP method, the time of entry doesn’t matter. If you chose improper time to invest in lump sum method, your investment will be costly and you will have more market risk. Concept of rupee cost averaging works in SIP therefore your investment in SIP never be costly.
- SIP is good option for both medium term investment like 3 to 5 year and long term investment like over 10 year while lump sum investment is good only for long term investment.
- Lump sum investment is more recommended than SIP in continuously growing markets.
- SIP is more recommended than lump sum investment in falling NAV (net asset value).
If you have regular income, you should go for SIP because SIP is less risky and fetches more return on investment.
Goal Planner Calculator
We all have some goals in life. Everybody keeps goals in life and wants to fulfill his/her goals and also work hard to fulfill his goals. But all people cannot fulfill their goals. Even after hard work why they fail to achieve goals? The reason is lack of planning.
We will talk here about some financial goals which every person wants to fulfill. But financial goals are not easy to achieve without proper planning. We must study and plan accordingly to achieve our financial goals because these goals need a huge amount of money to be fulfilled. Let’s see some financial goals which all we want to achieve sooner or later in life.
- Go on vacation
We work hard day and night to fulfill needs of our family. Our children work hard to be topper in their study. Continuous work brings tiredness and monotony. To break such monotony and for recreation of mind we need relax from works and surroundings. It means we expect vacation. Our children and wife also expect the same. Now a days people go on vacation with long time tour. Some people even enjoy vacation out of country- in foreign. Such a long tour requires a great amount. If we are planning to go for vacation after 5 year, we should set it as a goal and plan and invest accordingly to achieve this goal.
- Buying an asset
To have own house and own car is a golden dream of every person. Because of inflation and price rise in land market and property market, to have our own house seems a dream for us. You can make your dream real by proper planning from now. You plan to buy a house or car or any other property and set goals and invest accordingly. We will explain at the end part of this article about goal planner calculator to set goal and how to achieve that goal.
- Education of child/children
Due to privatization of education, the education is becoming more and more costly day by day. Fees of nursery of our children require our one or two salary. Think what will be when our children enter in higher level of education? At graduation and post graduation level study of our children, we will have to spend high amount after fees, coaching and donation. We must plan for this goal from now if we wish to provide better education to our children.
- Marriage of child/children
Now a days Rs 10 lack will be spent in marriage of child -especially after marriage of daughter by even middle class level person. We must plan for marriage of our children from now. Never think marriage ceremony comes after ten or fifteen years. Remember that Time and tide wait for none.
We, all, want to live happy and free life after retirement. We also don’t like to be responsibility of our children after retirement. We start to earn between ages of 25 to 30 and retire at age of 60. We work and earn 30 year. We have to live retired life for more than 20 year. We must plan for retirement from now. For details, read Why should I plan for Retirement Planning now? ( આર્ટીકલની લીંક આપવી.)
- Save tax
To earn money is not an easy task and to save money is very difficult task. Every person wants to save tax on his income and save his money. Goal planning can help you to save tax on your income by proper tax planning and investment planning.
- Other financial goals
We may have some other financial goals which also need proper goal planning.
Goal planner calculator
We have learnt about various goals. Let’s see how to set goal and plan accordingly.
Step One: Choose a goal. Ex- I want to buy a house.
Step Two: Decide present value of your goal. Ex- Rs 30 lakh
Step Three: Calculate how much you have already saved for that goal. Ex- Rs 10 lakh
Step Four: Calculate how much do you need for your goal. Ex- Rs 20 lakh
Step Five: Decide a time period to achieve your goal. Ex- 10 year
Step Six: Decide an expected annual rate of inflation and expected annual rate of return. Ex- 4% and 9% respectively
Step Seven: Fill appropriate figures in each column of goal planner calculator which we got from step two to step six.
After filling all input, goal planner calculator shows you future cost of your goal and amount to be invested per month to achieve this goal after stipulated time.
SWP is short form of Systematic Withdrawal Plan. You can calculate an amount you can withdraw regularly and the frequency at which you can withdraw if you invest lump sum in a mutual fund. The amount of withdrawal may be fixed or variable and withdrawal could be annually, half-annually, quarterly or monthly.
Benefits of Systematic Withdrawal Plan
- Basic benefit of systematic withdrawal plan is that your money be invested and you are also able to have regular income and return on your investment. Periodic income allows you to overcome your some needs of cash.
- Withdrawal from this plan is redemption and is not subject to tax deduction at source. However capital gain tax is liable on withdrawal.
- You have an option to set such a withdrawal amount that is only capital appreciation on investment. So you can keep the capital invested with benefit of regular income from investment.
- Generally fixed deposit or any other fixed income instruments do not offer protection against inflation. Your principal amount is safe invested in such instruments but the income may fall short of needs in future due to rising inflation. But SWP generates return to keep up with inflation if your mutual fund is equity oriented.
- Systematic withdrawal plan is a good option for regular income after retirement.
Drawback of Systematic Withdrawal Plan
- Systematic withdrawal plan affects your mutual fund. It is not the same as fixed deposit account. In fixed deposit account, you receive monthly interest but value of fixed deposit will be unaffected while in SWP in mutual fund, the value of your mutual fund is reduced by the number of units you withdraw.
You have 10,000 units in mutual fund scheme. You have instructed to the Mutual fund trust that you want to withdraw Rs. 10,000 per month.
On January 1, the NAV of the scheme is Rs 10.
Hence, the equivalent number of mutual units = Rs 10,000/ Rs 10 = 1000
1000 units are redeemed and Rs 10,000 will be given to you.
Your remaining units will be 9000 now.
On February 1, the NAV is Rs 20. The equivalent number of units = 500
These units will again be redeemed and Rs 10,000 will be given to you.
Again 500 units will be redeemed and you have balance of 8500 units remain with you.
- At time of market correction or in trend of bear market, SWP faces the reverse effect of rupee cost averaging and lower your overall internal rate of return (IRR).
You need initial investment amount, investment date, SWP starting date, SWP ending date and SWP frequency like monthly or quarterly etc as input data.
When you enter input data in proper column, you will get a detailed table which shows you following details:
NAV in Rs
Units transacted o
Cost of investment (original NAV)