Your high school mathematics needs to be good while calculating SIP returns on your own. If you are investing in your SIP mutual fund scheme on a regular basis, like every month, then you might also need some effective tool for calculating your long-term returns over your investment.
An SIP investment occurs on some particular date and at regular intervals. When you are making the investment, you are offered a certain number of fixed units. The number would depend on the current NAV (Net Asset Value) of the particular scheme at that specific time.
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Over a certain period of time, you would succeed in accumulating a large number of the units. This is the reason why it has become difficult for finding out the exact returns you would earn over a certain period of time. This is due to the reason that every installment of the SIP mutual fund scheme might have fared differently. Before investing in a SIP mutual fund, read here all about SIP.
So how should one determine the overall performance of one’s SIP investment?
Absolute or Point-to-Point Return
This technique helps the investors in calculating simple returns upon their initial investment. For calculating the same, the investors would need the initial as well as the ongoing or the last NAV (Net Asset Value) of the particular SIP scheme. For calculating the absolute or point-to-point return, there is no role of the holding period. Therefore, in case your starting NAV was like, 20 INR and after a period of three years, it has become 40 INR, then the absolute or point-to-point returns would round off to 100 percent.
For calculating your returns with this technique, you just need to apply the formula as:
Absolute return = (current NAV – initial NAV) / initial NAV x 100.
You can put this formula on an excel sheet and then you can start your calculations. You can use the formula for calculating the returns while the holding time tends to be less than one year.
Simple Annualized Return
Some people might wish to annualize their overall return that is generated while the holding period tends to be less than one year. This technique is also known as the “effective annualized yield”. This is actually referred to as the extrapolation of the returns. This does not give the original picture. In case you wish to annualize the SIP returns, then you can use the following formula:
((1 + Absolute Rate of Return) ^ (365 / number of days)) -1.
You can put this formula into the excel sheet for calculating the returns.
The absolute return has been made compulsory by the SEBI (Securities and Exchange Board of India) to be simple annualized while the period tends to be less than one year.
CAGR (Compounded Annual Growth Rate)
When the tenure for your SIP investment tends to be more than one year, CAGR can be an easier way of calculating the returns. This usually depicts a figure that reveals the manner in which the investment should have grown if it had been generated as the steady return. But, in reality, the expected returns might not tend to be equal every year. This is the reason CAGR is used to represent the mean annual growth rate which tends to smoothen the volatility occurring in the returns upon a certain time period.
When you are using CAGR for calculating returns of your SIP investment, then you can make use of the formula as:
((( Ending Value / Beginning Value) ^ (1 / number of years)) – 1 * 100
Make use of these simple steps for calculating the returns on your SIP investment. Thus, you can analyze the growth of your investment in a better way.
Role of the SIP Calculators
In case you are not into doing complex mathematical calculations on your own, then you can take the help of the simple, automated SIP calculator for calculating your monthly returns. If you wish to make a successful investment, then it is imperative to maintain a systematic approach towards calculating your returns. Financial planning must be your topmost priority. This can be done by analyzing the exact returns of your investment. This is where the role of SIP calculators comes into play.
An efficient SIP calculator allows an investor towards estimating the returns he or she is bound to receive after the completion of a certain tenure for a particular amount of invested money. In addition to this, if an individual has some particular financial goal in the mind, like some retirement plan or emergency fund for medical purposes, then also the SIP calculators help the individual in estimating the amount of money needed to be invested by him or her every month in order to achieve the desired financial goal. Use calculators on this page to plan your investment.
Steps of Using the SIP Calculator for Calculating Your Returns
An SIP calculator makes use of only a few data for estimating the returns of your investment. Here are some simple steps that an individual needs to follow while using the SIP calculator:
Step 1: Input the SIP amount that you wish to invest into a certain investment plan. There are different investment limits for different investment companies. You can make yourself aware of the same and then make the desired investment.
Step 2: This step involves the estimation of the possible rate of return on the investment. This estimation is done depending on the track record of the particular fund in the past few years.
Step 3: This step is concerned with the investment tenure. It is vital to decide the exact period of time that you would like to stay invested in a particular investment plan. The different SIPs allow the investors a minimum tenure of 6 months. However, to expect higher returns, it is advisable to stay for a longer period or tenure.
The various SIP calculators are available online and free of cost. Therefore, you can calculate the returns upon your investment anytime and anywhere you want. Enjoy the benefits of a SIP calculator!