Before we look at the similarities of the SIP Planner and SIP calculator, we need to have a basic understanding of SIP – how it works, the benefits of SIP and other related issues.
What is SIP?
Many financial institutions and banks offer SIP (Systematic Investment Plan). It is another mode of investing in mutual funds. This is primarily aimed at retail investors who cannot make large, lump sum investments. In SIP, you can decide to set aside a predetermined amount as your investment. It is a deliberate approach and helps you indoctrinate a routine of disciplined saving and building wealth for a “rainy day”.
How does SIP work?
Investing in SIP helps you to make investments in a disciplined manner. All investments are managed by a Fund Manager who invests your money in Mutual funds and other financial instruments to get a maximum return on investment for their clients. Payments for SIP can be made at the following frequencies:
• Monthly
• Quarterly
• Weekly
SIP Calculator and SIP Planner for your financial planning
The SIP calculator is an ideal tool for your financial planning. In addition to selecting the best SIP mutual funds, keeping a close watch on NAVs and SIP returns, you must also have a strategy in place – this is where the SIP calculator plays a vital part. With this tool, you can plan for your dream house, vehicle, marriage expenses, retirement planning, higher education and any other financial goal in your life.
The SIP calculator is basically a simple “spreadsheet” that requires some basic inputs like investment amount, the frequency of investment (weekly, monthly, quarterly) and period of investment. You can also provide additional information like long-term rate of inflation and expected market returns. The SIP calculator will calculate the maturity value for the investment period so you can make your financial planning accordingly.
Conversely, you can also determine the amount one should invest in a SIP to get a specific maturity amount.
For example:
If you are using a SIP calculator and plan on a regular investment of Rs 1000 for 10 years – your total investment for will be displayed as Rs 1,20,000. If you consider long-term inflation at 5% – your expected maturity amount would be calculated at approx Rs 1, 94,000 which means that your long-term growth rate was around a decent 14% and your net profit was Rs 74,900. These are fairly accurate figures.
SIP planners are also effective to plan for the future given the resources available to you. You can select the duration of the investment payments the rate of inflation and other information required by the SIP planner. It is almost identical to the SIP calculator.
A plethora of plans are offered by banks and financial institutes for different life goals. It is advisable to look at all the offerings and decide on what best suits your needs. Given below are some plans that are expected to do well in 2018.
Top best performing funds to invest in 2018
L&T Emerging Businesses Fund Growth
IDFC Tax Advantage (ELSS) Fund Growth
IDFC Infrastructure Fund Growth
Aditya Birla Sun Life Small & Midcap
Franklin Asian Equity Fund Growth
Axis Focused 25 Fund Growth
Principal Emerging Bluechip Fund Growth
Invesco India Growth Fund Growth
Tata Retirement Savings Fund – Progressive Growth
Tata India Tax Savings Fund Growth
Similarities between SIP Calculator and SIP Planner
Both have similar features as given below:
Ease of operation
You can authorise your bank to make auto debit from your bank account to make the payments towards your SIP. It is ideal for retail investors who do not have professional advice or cannot pursue active investments.
Long-term gains
SIPs take into account, future inflation and the power of compounding and thus has the potential of delivering a high return over a long investment period.
Flexibility
SIPs can only work for you if you have a long-term perspective on your SIP investment. SIP allows you to exit the plan easily and also you can increase or decrease the amount you are investing.
Compulsory savings
SIP requires a disciplined approach for your investments to be fruitful. Regular savings help to build up your wealth to achieve your financial goals – like your child’s marriage, education, old age, medical expenses etc.
Rupee cost averaging
When the markets are volatile, many investors hesitate to invest and wait for the right time to enter the market. Rupee cost averaging feature of SIPs fetches more units when the price is low and lesser when the price is high.
Power of compounding
Your investment is compounded and the sooner you start investing the better the maturity value. Albert Einstein once said that “Compound interest is the eighth wonder. He who understands it earns and he who doesn’t – pays it”.
Consult a financial planner
Every financial institution or Bank has professional Financial Planners who are ready to help you and prepare a package for you. A word of caution – these planners will push their products that may not be suitable for you. Look around and compare offers before you take the plunge.
