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SIPs Explained: How to Use an SIP Calculator?

  • Highlights

  • SIPs use the power of compounding to multiply money

  • SIPs enhance gains with Rupee Cost Averaging

  • An SIP calculator provides quick and accurate results

  • Choose the best tenor and amount with an SIP calculator

Investing in a Systematic Investment Plan (SIP) can help you build wealth through regular contributions of your choice. Here, a market expert helps you direct your investment amount to a beneficial security, usually a mutual fund. The key benefit is that when you invest via SIPs, you don’t need to save a lump sum first and then invest it in securities, or take on the risk of choosing a security yourself.
Also, you can choose to invest as little as Rs.500 and still receive good returns. Take a look at how your money multiplies when you choose a SIP.

SIPs multiply money using two concepts:
- Power of Compounding
- Rupee Cost Averaging

Power of compounding: In an SIP, your investment earns compounding interest and not simple interest. This makes it more beneficial. When interest is compounded, the interest amount is added to the base amount that you invested and the next year, this increased base amount earns interest. This magnifies your returns significantly, especially in the long run.

Rupee Cost Averaging: This is the manner in which an SIP investment is carried out. It means buying less when prices are high, and buying more units when prices are low. When you hold the SIP for a long period of time, it cancels out the impact of market fluctuations. This is known as rupee cost averaging.

How to use an SIP calculator

Using an SIP calculator can help you view the results that you can expect when you choose this instrument. As a result, you can use an SIP calculator to plan your investment better, right from deciding the amount that you should invest to the tenor that you should select. Here is how you can use an SIP calculator with ease.

- Use the slider or enter the amount that you want to invest in the first field.
- Next, enter the tenor that you want to invest for (in years).
- In the third field enter the rate of interest that you expect.
- Click on ‘Submit’ to view results.

For instance, assume that you invest Rs.2,500 each month for 5 years. This will be the investment amount that you enter in the first field and the tenor respectively. If your rate of interest was 15% p.a., your returns would be:
- Interest earned: Rs.71,436
- Total amount invested: Rs.1.5 lakh
- Total amount on maturity: Rs.2,21,436  

Bajaj Finserv offers investments in SIPs along with an SIP calculator that brings you accurate results so that you can make an informed decision. You can also try out the advanced SIP calculator and SIP Need Calculator to understand your options better.

Investing in the best SIPs can help you inculcate a regular investment habit and grow your wealth. But, before you select an SIP, be sure to use the SIP calculator to check whether you’re making the right decision.

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