SIP investments are a popular way of investing, but one has to determine the actual returns derived from SIP investments through manual calculation with the help of a formula or through a few clicks online using a SIP calculator. Manual calculations help to understand the magic of compounding, while the SIP calculator saves time and minimizes errors for accurate results. This article presents both options evaluated in detail for an informed choice.
What is SIP?
A SIP or Systematic Investment Plan is an intelligent and sustainable method to invest money by creating a perfect investment plan in mutual funds through a fixed amount. SIPs instill discipline in finances by allowing regular small investments and helping investors benefit from the magic of compound interest. Most SIPs go into large-cap stocks, established companies with financial stability associated with a relatively lower risk and steady returns. Thus, SIP is very good and simple for long-term wealth creation for investors.
Why do we need to track SIPs?
SIP investments create wealth by adding all of the amounts up over time. Therefore it is very important to keep track of the SIP investments and monitor them at times while achieving financial goals optimally and planning according to lifetimes and market changes. SIP calculators are a great source for taking such regular investments.
What is a SIP calculator?
A SIP calculator is an online tool that rapidly gives you the future value of your SIP investment. Investors enter a monthly investment amount, tenure, and expected return rate, and this is promptly delivered through the Future Value (FV) formula. A monthly sip calculator can provide the amount that shall be accumulated at the end of the investment period if you invest a fixed amount regularly over a specified time.
How are SIP returns calculated?
SIP is calculated using the aspect of compounding interest, where each monthly investment grows over time with accumulated returns. SIP returns can be calculated manually and using an online SIP calculator. Let us know how SIPs are calculated using these two methods.
Manual Calculation
For manual calculation, you must use mathematical formulas to determine the Future Value of an investment, which accounts for monthly contributions and the compounding effect. Another method is to apply the CAGR (Compounded Annual Growth Rate) to measure the average annual return. The XIRR (Extended Internal Rate of Return) is used for the irregular cash flows of SIPs. Therefore, manual calculations provide deep insights and precision with numbers, providing better control over investment growth knowledge. This process requires time and accuracy when applying formulas.
SIP Calculator
An SIP calculator is an online tool that quickly estimates the future value of SIP investments. Investors simply enter details like monthly investment amount, tenure, and expected return rate, and the calculator promptly provides results using the Future Value (FV) formula. It does not use any of the complex formulas like CAGR or XIRR, minimising the chances of errors. SIP calculators are user-friendly, time-saving, and ideal for investors looking for quick and accurate projections of their investment growth.
A comparison of Manual vs. SIP Calculator
A comparison of manual SIP calculation vs. an SIP calculator given below
shall help investors understand which method suits their needs:
| Factor | Manual Calculation | SIP Calculator |
| Pros | No external tools required | User-friendly and requires simple inputs like investment amount, tenure, and expected return. |
| Helps understand the complex calculations | Gives quick results. Immediately estimates potential returns. | |
| – | Results are accurate with fewer human errors. | |
| – | Helps set and strategize financial goals | |
| – | It is accessible online anytime, anywhere. | |
| – | Ideal for beginners as it simplifies the investment process | |
| Cons | Time-consuming and prone to human errors | Estimates and does not guarantee. Based on assumptions and historical data |
| It may not be as accurate for complex scenarios | Requires internet access to use online tools | |
| Difficult for beginners to grasp |
Conclusion
Both manual calculation and SIP calculators have their benefits when calculating SIP returns. The article discusses that while manual calculations help investors understand the deep mathmatics, it can be time-consuming and complex. Alternately, an SIP calculator provides prompt, accurate results, making it ideal for most investors, particularly beginners. Finally, the best approach depends on individual preferences for ease, tracking, and planning investments effectively.
