Systematic Investment Plan: Everything you need to know

SIP Calculator

What is SIP, Origin & History?

What is sip in mutual fund? SIP or systematic investment plan is a scheme by which one can invest huge sum of money without straining on their monthly income and savings. A fixed amount (as low as Rs. 500) is invested monthly over a fixed period of time which can be a few months or more. The SIP tenure can be as of 6 months or years. SIP calculator helps an investor to calculate the returns of every individual SIP.

A mutual fund investment calculator is freely available online and helps calculating returns for monthly sip funds in different categories of mutual funds. Before Mutual Fund agents misused their powers and the many cases of forgery was reported. These circumstances made the mutual funds experts to create a structure which facilitated hassle-free investment procedure. The online investment decreased the hassle of the investor to some extent, but it also burdened the task of calculating amount, interest, and sip returns. Mutual Fund SIP calculator helps in simplifying this intricate task. It can be used by anyone as it is a user-friendly tool. The need for creating a tool calculator was to attract customers for investing online for high return sip plan.

What is SIP Calculator, Advanced SIP Calculator & how does it work?

Online SIP Calculator helps you to know how sip works by investing a little amount at regular intervals can yield much bigger returns after a longer time period. You have to select the monthly sip amount, tenure in years and rate of return that is expected to result at the maturity value.

The sip advanced calculator is an updated version of the basic yearly sip calculator; it calculates your return after inflation. This provides a better view in result of the maturity value by taking inflation into consideration. Here too you need to choose the monthly investment amount, tenure in years, expected rate of return and expected rate of inflation to arrive at maturity value, before and after inflation. With the SIP calculator an investor can estimate the returns at the end of a fixed tenure for a certain amount that is invested usually monthly into the SIP system. However if a person has a fixed achievement decided like a corpus after retirement or immediate fund for sudden medical expense, a mutual fund SIP Calculator helps the investor to figure out how huge monthly investment will suffice the needed corpus.

Benefits of Mutual Fund SIP Return Calculator

Sip benefit calculator guides investor to make their investment decisions faster. The formula is complicated and thus results of manual calculations have chances of being incorrect. Using Sip calculator helps investors get accurate results easily to take right investment decisions. The usage of a sip calculator is supported by both groups of people who belong to a financial background as well as who do not come from a financial background in India. Although own SIP calculator can be created in Excel by many, it is more easy to use the online free resources available.

Using an SIP calculator for new investors make them equally informed as the experienced investors to enjoy benefits of sip investment. The correct results produced by the sip calculator can help new investors as well to get benefits of sip in mutual funds and sip tax benefit by guiding them to estimate their prospective returns.

These calculators are easy and user friendly with only a few required variables that is to be entered in order to generate quick accurate results for their sip benefits. This has been attracting investors and the SIP calculator for mutual fund is being promoted by many funding companies and brokers.

Types of SIP plans

Systematic Transfer Plan (STP): For those who invest into multiple funds at the same time this is ideal. The STP enables these investors to transfer some portion of their investment into another fund. Investors by this method can benefit from the opportunity of moving their investment from a low-return plan to a higher return plan or from high risk fund to a lower risk fund. By using STP plans method to liquidate ones investment little by little also ensures that the returns gained can be reinvested into another highest return sip mutual fund. STP encourages financial discipline which is the prime factor in returns guarantee that funds investor’s future requirements. One can use an online SIP calculator to calculate projected earnings.

Systematic Withdrawal Plan (SWP):  Investments help your money to grow so that there is financial security in future and an SIP calculator helps you to plan expenses. However, it is not a good idea to liquidate a huge investment as lump sum. In an SWP, the investor has the option to liquidate some part of the mutual fund investment periodically in to meet landmark expenses. A SWP scheme lowers the risk of impulsive and expenditure, and the investment grows further to be used.

List of documents to open SIP account

Application form- You have to fill one sip form for opening an account with the mutual fund and another to specify your sip details such as frequency, monthly instalment amount etc. Both the forms have to be filled if you are freshly investing into a new Mutual Fund scheme.

KYC details- KYC or Know Your Customer has been made mandatory for investing into mutual funds. Before one had to submit their PAN card details but since KYC proves your PAN availability the requirement of PAN details is there no more.

Blank Cheque- Nowadays a cancelled blank cheque is not necessary but if you want to start a sip scheme without investing the minimum amount, you should give a cancelled blank cheque to enable an electronic clearing system mandate to ensure that your cheque details are correctly captured.

Third party declaration form for minors- A minor’s parents are allowed to invest for their children. The sip documents require proof of parental relationship with the minor e.g. a passport. If the child is orphan, then a guardian appointed by court can invest with submission of necessary documentary to prove the relationship between the guardian and minor child.

How to start a SIP?

Step 1- provide necessary sip documents

You need only a few basic documents to start a sip account. A PAN card, address proof such as driving licence/bank statement/utility bill, a passport size photograph and a cheque book are to be submitted. Providing Aadhar number will simplify the process although it isn’t mandatory for applying sip offline.

Step 2- Comply with KYC

It is necessary to comply with Know Your Customer (KYC). You have to provide basic details like name, date of birth, mobile number, address, etc. You have to complete the process just once, even if you invest in multiple mutual fund schemes in different fund houses in future.

Step 3- Open sip account online

How to open sip account? Look for a ‘Register Now’ or a ‘New Investor’ option in the webpage. It will ask you to fill up a simple form with basic details, and to select a username and password for online transaction. You will be asked to enter your bank account details for setting up a monthly debit and for processing when you redeem redemption proceeds. You can easily log in with your username, password and select the scheme you desire to invest in.

Where to open SIP account?

When it comes to opening an SIP account, there are several avenues that you can explore in this regard. Since these are primarily mutual fund investments, you can consider applying to open an SIP account offline with a recognized mutual fund distributor or investment firm. Do make sure that the organization has the right registrations and other credentials before opening your SIP account.

You can do this offline at the nearest branch/office of the financial institution in question. You can also choose Aditya Birla SIP or even HDFC SIP plans among other schemes offered by financial institutions and banks. There is the SBI SIP and of course the ICICI Mutual Fund SIP among others. You can apply to open your SIP account offline/online with your bank as well. Visiting your nearest branch will definitely help in this regard. Make sure that you are conversant with all the terms and conditions while setting up an SIP account. In many cases, there are many specialized investment agencies that allow online applications for SIP accounts. However, you should always do your homework before choosing the right avenue for investments.

How to invest in SIP?

There are some basics behind SIP investments. You have to consider online SIP investments carefully since there are some basics of SIP investments that should always come into play.

Make sure that you know all the SIP investment details and how SIP investment works. Here are some key points-

  • Regular & Small Sized Investing- If you were still thinking what is SIP investment, you should know that you can achieve your desired financial objective by making regular investments in smaller amounts. SIPs enable investing of small amounts starting from Rs. 500 and more. You can invest on a fortnightly, weekly or even monthly basis. There are quarterly basis investments allowed too.
  • Discipline-Building- SIPs are all about disciplined investing for the long haul. You should never miss an investment payment and be at one with this innovative system for building long-term wealth.
  • Convenience- You can invest either offline or online. You can choose transactions which are completely paperless and swifter as compared to offline portfolios. You can also link your investment portfolio to your bank account. Salaried professionals can connect their portfolios to their salary accounts itself. KYC compliance is necessary before you start investing money in SIPs.
  • Compounding Principle- Compounding is what creates your wealth and this is where SIPs play a vital role indeed. The small amounts invested periodically will definitely add up over the years.
  • Rupee Cost Averaging- This is an automatic system for timing the market. Since SIP investments take place periodically, a higher number of units are purchased in a rapidly declining market and when things improve, the investment value also increases.

Steps to Use SIP Calculator to calculate returns on SIP Investment

Wondering how to use the SIP return calculator? There are several SIP return calculator formulas that you must be conversant with in this regard.

There is the absolute/point-to-point formula for working out the SIP return rate in case your holding period is lower than 12 months. You need the NAV of the scheme (initial/ending/current). Absolute Return = (current + initial NAV) / initial NAV * 100

You can also calculate your SIP amount earned with the Simple Annualized Return formula-

((1 + Absolute Rate of Return) ^ (365/number of days)) – 1

The calculation can be done in Excel for swifter results.

The SIP returns chart often refers to the CAGR (Compounded Annual Growth Rate). Here’s how to calculate the same:

=(((ending-value/beginning-value)^(1/number-of-years))-1*100

You can use this to calculate the value in Excel. In case the holding period is computed in the number of months, this formula can be used:

= (((ending-value/beginning-value)^(12/number-of-months))-1*100

In case you already have the number of days and NAV at your fingertips, this is the formula to be used:

=(((ending-value/beginning-value)^(365/number-of-days))-1*100

You can also make use of XIRR which is an Excel function for calculating your rate of return from SIP investments or the yield on an annualized basis. You will require details such as the SIP amount, investment dates, redemption date and maturity amount for this purpose.

How to transfer SIP from regular to direct plan

Looking to make a hassle free SIP transfer to a direct plan from a regular plan? The switch to an SIP direct plan is not as hard as it may initially seem. Direct plans usually have expense ratios which are lower in comparison to regular plans because there are no distribution/selling costs included in the former.

As a result many want to make this SIP switch to direct plans. The shifting can be done via SIPs even if these have commenced before 1st January 2013. SIP investment plans which are under distributors can be switched to direct plans for the installments which are remaining. Terms and conditions will remain the same. Here’s what you also have to do:

  • Submit a written request to the Investor Service Centre/AMC with scheme name, holder details, folio number and signature. A standard form is to be used for the switch.
  • Submit the request before 15 days from the next installment (minimum). Once the request is received, 21-30 working days may be needed for processing and conversion to direct plans by the AMC.
  • For existing investments, you can request a conversion to direct plans in the same folio. The request will come with exit loads.
  • Post conversion, dividend reinvestment in future will take place for direct plan only.
  • Redemption is a part of conversion and hence will have capital gains tax imposed wherever applicable.

Best SIP Mutual Funds

Have you been looking out for the best SIP mutual funds to invest in? There are several options that you can consider in this regard:

  • SBI blue chip fund– This fund makes investments in stocks of organizations where the market cap is equal to/more than the BSE 100 Index market capitalization stock. Annualized returns have been around 18% over the last 5 years.
  • Aditya Birla Mutual Fund SIP– The Aditya Birla Sun Life Frontline Equity Fund has provided 17.5% in annualized returns over 5 years.
  • ICICI Prudential SIP– The ICICI Pru Focused Blue Chip Fund has ensured 16% annualized returns over the last 5 years.
  • Reliance Small Cap Fund SIP– This fund has performed exceedingly well, having ensured 30% of annualized returns over the last 5 years which has surpassed all estimates and other peers.
  • Mirae Asset Emerging Bluechip Fund- This is another high performing fund that has given returns (annualized) of around 29% over the last 5 years. This fund invests only in companies with market capitalization of Rs. 100 crore or more.
  • Franklin India Smaller Cos Fund- This fund focuses more on smaller organizations, investing up to 75% in these entities. 30% annualized returns have been ensured over the last 5 years by this fund.
  • Franklin India Higher Growth Companies Fund- This fund has provided 22% in annualized returns over a period of five years and invests in Indian business sectors/companies that have sizable potential.
  • Kotak Select Focus Fund- This fund usually diversifies into equity linked and equity investments and emphasizes on specific business sectors. Annualized returns have been around 20% over the last 5 years.
  • ICICI Pru Balanced Mutual Fund- This fund makes investments in money market securities, fixed income and equity channels. 18% annualized returns have been generated over the last 5 years by this fund.
  • HDFC SIP Plan– The HDFC Balanced Fund deploys 60% of investments in equity while the remainder is invested across debt linked financial instruments. The annualized returns have touched 17.7% over the last 5 years in case of this fund.

Here’s summing up the top 10 best mutual funds for investment-

Category Mutual Fund CRISIL Rank Value Research Rating AUM (Assets Under Management) (Rs. Crores) 3 month (%) 1 year (%) 3 year (%) 5 year (%)
Large Cap SBI Blue Chip Fund 1 5 Star 15, 570 2.6 11.5 13.2 18.3
Large Cap Aditya Birla SL Frontline Equity Fund 2 4 Star 18, 948 3.4 15 12.8 17.7
Large Cap ICICI Pru Focused Bluechip Equity 3 4 Star 14, 337 5.0 17.5 11.7 16.3
Mid-Cap-Small Cap Reliance Small Cap Fund 2 3 Star 4, 372 5.4 31.3 21 30
Mid-Cap-Small Cap Mirae Asset Emerging Bluechip Fund 1 5 Star 4, 305 3.6 25.3 23.7 29.6
Mid-Cap-Small Cap Franklin India Smaller Cos 3 5 Star 6, 161 4.1 18.2 20 30
Diversified Franklin India High Growth Cos Fund 3 5 Star 6, 851 1.0 14.4 13.5 22
Diversified Kotak Select Focus Fund 1 4 Star 13, 492 3.6 18 16.5 20
Hybrid/Balanced ICICI Pru Balanced Fund 2 4 Star 18, 097 2.4 15 13.1 18
Hybrid/Balanced HDFC Balanced Fund 1 4 Star 14, 767 2.0 15.2 13.5 17.7

 

Advantages & Disadvantages of SIP 

Wondering about the advantages and disadvantages of SIP investments? When it comes to SIP calling, you should definitely get your basics right before investing.

Here are some of the advantages of SIPs-

  • Investor Convenience- You can set up your SIP account with any mutual fund online and there are even mobile apps available for starting investments. You can easily begin your investment journey by choosing your desired mutual fund, setting the quarterly/monthly investment amounts, setting pre-fixed dates for installments, setting your investment horizon overall and establishing the bank account link. Once this is established, the investment amount will be debited automatically from your bank account.
  • Tackling Volatility- SIPs also help you stay away from timing markets. These investments can neatly tackle volatility through the rupee-cost averaging mechanism. Based on this system, you will naturally purchase more units whenever prices are lower and buy lesser units when they are higher. This makes for a disciplined approach and reduces overall investment costs.
  • Enables disciplined wealth creation-With regular SIPs you can stay on track for reaching your financial goals and can create long-term wealth through compounding in a more disciplined manner.

Here are some disadvantages of SIPs

  • There are market risks attached to SIPs- Most people who are investing only for a shorter period of time should not expect great returns. SIPs are best for returns over a longer period of time.
  • Lumpsum investing may be better at times- There are certain market cycles where lumpsum investments may provide better returns in comparison to SIPs.
  • May encourage casual investor behavior- Many people casually invest in SIPs since everybody else is also investing in a similar manner. This may make one grow complacent and people may relax without doing anything else. This may take attention away from one’s financial goals and the need for diversification into other financial investment channels for better growth of your portfolio.

 

Comparison-

SIP vs PPF-

There are several differences between SIPs and PPFs which you must know before you zero in on the best mutual funds for SIP investments. If you make a SIP vs PPF comparison, you will see that the former enables investments in mutual funds through regular instalments of a pre-fixed amount which is usually small.

Investments are made on a monthly/quarterly basis instead of paying a large sum altogether. PPF or Public Provident Fund is a long-term investment plan where one can open an account for 15 years (minimum) and the initial deposit is Rs. 500 (minimum) and the maximum one-time deposit can be Rs. 1, 50, 000 over a year in installments or as a lump sum payment. Once the PPF tenor gets over, investors can reinvest for 5 more years or withdraw their returns.

There is no SIP locking period while the lock-in period for PPF investments is 15 years. PPFs are considered safer as compared to SIPs although they have lower liquidity as compared to SIPs. In case of PPFs, money can be withdrawn only after the start of the 7th year from the date of investment.

ELSS vs SIP

Before you go on to think of which mutual fund is best for SIP, you should know the ELSS vs SIP comparison. ELSS (Equity-Linked Savings Schemes) is a mutual fund type that primarily makes investments in equities. The returns are higher and they offer dual tax benefits via Section 80C and LTCG benefits and dividends up to Rs. 1 lakh. SIPs are mutual fund investments on a weekly, monthly or quarterly basis and investments are small and pre-determined usually.

The key difference is that ELSS is all about investing only in equity based securities while this is not the case for SIPs. The latter is an investment method while the former is a mutual type. Tax benefits vary for SIPs depending on the plan chosen while ELSS investments come with definite tax benefits. SIPs do not have lock-in periods while 3 years is the fixed lock-in period for ELSS investments. In case you were wondering which SIP gives best return, this could be a good choice and also in case of those considering a tax saving SIP.

SIP vs Lumpsum

SIPs are investments made in mutual funds on a monthly/weekly/quarterly basis in pre-fixed amounts which are usually small. Lumpsum investments, on the other hand, are investments which are done at one go. This is usually done by more seasoned investors who have thorough understanding of market behaviour and when valuations are on the lower side.

SIP ELSS PPF Lumpsum
No lock- in period 3 year lock-in 15 year lock-in No lock- in period
Investment on monthly/quarterly/weekly basis Investment on monthly/quarterly basis Investment on monthly basis/one-time annually One-time investment
Higher market risks Higher market risks Lower market risks Higher market risks
Higher liquidity Lower liquidity (withdrawal after 3 years) Lowest liquidity (withdrawal after 15 years) Higher liquidity
Tax benefits vary Dual tax benefits Assured tax benefits Tax benefits vary
Investing Method Type of Mutual Fund Investment Avenue Investing Method

 

FAQs

  • Is SIP safer than lumpsum investments?

If you’re already into the SIP vs lumpsum debate, you will know that SIPs are considered safer since you invest relatively smaller amounts periodically and build up wealth over a longer period of time. Also, there is higher growth through compounding. At the same time, while it may seem riskier to invest a lumpsum amount in one go, this may be a good strategy for seasoned investors with considerable market knowledge at particular cycles when valuations of stocks and shares are on the lower side.

 

  • What are the best fund schemes to invest in SIP?

The best mutual fund for long-term SIP investment can be chosen from the below options-

 

Category Mutual Fund CRISIL Rank Value Research Rating AUM (Assets Under Management) (Rs. Crores) 3 month (%) 1 year (%) 3 year (%) 5 year (%)
Large Cap SBI Blue Chip Fund 1 5 Star 15, 570 2.6 11.5 13.2 18.3
Large Cap Aditya Birla SL Frontline Equity Fund 2 4 Star 18, 948 3.4 15 12.8 17.7
Large Cap ICICI Pru Focused Bluechip Equity 3 4 Star 14, 337 5.0 17.5 11.7 16.3
Mid-Cap-Small Cap Reliance Small Cap Fund 2 3 Star 4, 372 5.4 31.3 21 30
Mid-Cap-Small Cap Mirae Asset Emerging Bluechip Fund 1 5 Star 4, 305 3.6 25.3 23.7 29.6
Mid-Cap-Small Cap Franklin India Smaller Cos 3 5 Star 6, 161 4.1 18.2 20 30
Diversified Franklin India High Growth Cos Fund 3 5 Star 6, 851 1.0 14.4 13.5 22
Diversified Kotak Select Focus Fund 1 4 Star 13, 492 3.6 18 16.5 20
Hybrid/Balanced ICICI Pru Balanced Fund 2 4 Star 18, 097 2.4 15 13.1 18
Hybrid/Balanced HDFC Balanced Fund 1 4 Star 14, 767 2.0 15.2 13.5 17.7

 

  • How long should I invest in SIP?

While you will finally choose your SIP investment details, it is wise to invest for a minimum of three years to earn some returns at least. However, remember that SIPs are most likely to grow your wealth over the long haul and hence you can invest for a period of 5-10 years and even more depending on how and when you wish to accomplish your financial goals.

  • What is the use of SIP calculator?

An SIP investment calculator comes in handy when it comes to working out your rate of returns from your investments. It helps you calculate the compounded annual growth rate or CAGR for your investment and also the total gains expected from your investment.

How is lock in period for ELSS is calculated in case of SIP?

The SIP locking period in case of ELSS is 3 years. These funds have a compulsory lock-in period of three years.

How do I calculate returns on your SIP investments manually?

If you wish to calculate manually, you should use the following SIP returns formulas-

There is the absolute/point-to-point formula for working out the SIP return rate in case your holding period is lower than 12 months. You need the NAV of the scheme (initial/ending/current). Absolute Return = (current + initial NAV) / initial NAV * 100

You can also calculate your SIP amount earned with the Simple Annualized Return formula-

((1 + Absolute Rate of Return) ^ (365/number of days)) – 1

The calculation can be done in Excel for swifter results.

The SIP returns chart often refers to the CAGR (Compounded Annual Growth Rate). Here’s how to calculate the same:

=(((ending-value/beginning-value)^(1/number-of-years))-1*100

 

You can use this to calculate the value in Excel. In case the holding period is computed in the number of months, this formula can be used:

= (((ending-value/beginning-value)^(12/number-of-months))-1*100

 

In case you already have the number of days and NAV at your fingertips, this is the formula to be used:

=(((ending-value/beginning-value)^(365/number-of-days))-1*100

You can also make use of XIRR which is an Excel function for calculating your rate of return from SIP investments or the yield on an annualized basis. You will require details such as the SIP amount, investment dates, redemption date and maturity amount for this purpose.

  • How can I calculate the return and tax payable on equity MF investing by SIP?

The mutual fund SIP returns can be calculated using the above formulae. When it comes to calculating the taxes payable, you should follow the thumb rule for long-term capital gains tax (LTCG) where equity mutual funds that have equity exposures of 65% or higher, are taxed at 10% on long-term capital gains exceeding Rs. 1 lakh annually.

Based on the number of equity units sold by you, the number of units bought and dates have to be worked out and the NAV also has to be available along with calculations of the holding period in order to find out the gains which are long-term ones.

  • Which are best SIP plan for a good return?

Some of the best SIP plans include the following:

  1. SBI Blue Chip Fund
  2. ICICI Pru Balanced Fund
  3. HDFC Balanced Fund
  4. Aditya Birla SL Frontline Equity Fund
  5. Reliance Small Cap Fund

These are only a few of the best funds available for investments. You should do your homework and choose accordingly.

  • How do I calculate returns from Systematic Investment Plan?

There is the absolute/point-to-point formula for working out the SIP return rate in case your holding period is lower than 12 months. You need the NAV of the scheme (initial/ending/current). Absolute Return = (current + initial NAV) / initial NAV * 100

You can also calculate your SIP amount earned with the Simple Annualized Return formula-

((1 + Absolute Rate of Return) ^ (365/number of days)) – 1

The calculation can be done in Excel for swifter results.

The SIP returns chart often refers to the CAGR (Compounded Annual Growth Rate). Here’s how to calculate the same:

=(((ending-value/beginning-value)^(1/number-of-years))-1*100

 

You can use this to calculate the value in Excel. In case the holding period is computed in the number of months, this formula can be used:

= (((ending-value/beginning-value)^(12/number-of-months))-1*100

 

In case you already have the number of days and NAV at your fingertips, this is the formula to be used:

=(((ending-value/beginning-value)^(365/number-of-days))-1*100

You can also make use of XIRR which is an Excel function for calculating your rate of return from SIP investments or the yield on an annualized basis. You will require details such as the SIP amount, investment dates, redemption date and maturity amount for this purpose.

  • How can I extend my SIP duration?

Once your SIP investment period is completed, you will be getting a renewal form. Fill this up to easily extend your SIP duration.

  • How to shorten SIP duration?

You can only shorten/stop your SIP investment only if you have completed the minimum period which can be around 6 months in case of most funds. You should ideally start SIPs ranging between 6 months to 1 year in order to avoid any shortening. You can add more time based on the fund’s performance.

  • Is SIP safe?

SIP investments come with an element of market risk. However, they are considered safer options since you make periodic investments in small amounts. They are considered ideal options for compounding and growing wealth over the long haul. Of course, the risk element is always there.

  • Can I miss an SIP payment?

If you miss SIP payments for three months in succession, your SIP will be cancelled by your fund house. You will not be penalized in case a single SIP payment is missed. Your bank will be imposing charges for missing the payment and these vary from one financial institution to another.