The Risks of Not Using a SIP Calculator: Why You Need to Start Today

Photo of author
Written By jiya ahuja

SIP calculator
In today’s fast-paced world, one needs to make smart choices in terms of financial investments to ensure financial stability and secure a financially sound future. Mutual funds would be one of the smartest choices, especially when facilitated through Systematic Investment Plans (SIPs). Yet, most investors, even experienced ones, fail to realize that to make the most of SIPs, a thorough understanding of the plan’s outcome is necessary, and that is where SIP Calculators come into play. In this article, we will delve into the risks of not using a SIP Calculator and highlight why investors must start using it.

What is SIP?

SIPs allow investors to invest small amounts of money at regular intervals of time, instead of lump-sum investments commonly made in mutual funds. These plans allow investors to plan their investments according to their financial capacity, and its meager entry and exit loads, make it an attractive investment avenue. With SIPs, even small-time investors can avail the benefits of a bajaj mutual fund with as little as Rs 500.

What is a SIP Calculator?

SIP Calculators are online tools that help investors understand the potential outcome of their SIP investments, provided they input the SIP amount, tenure, and expected returns. SIP calculators meticulously calculate the returns of a particular plan, and the invested capital’s growth over a pre-determined timeframe.

Now that we know what SIPs and SIP Calculators are let’s examine the risks of not using the latter when opting for the former.

1. Investor Belief Vs Reality

Investors may have faith in a particular investment plan and calculate potential outcomes via mental arithmetic. However, this belief may differ from reality and may lead to investing in an unfavourable plan with lower returns. On the other hand, investors who check the returns via a SIP calculator can make informed decisions that align with their financial goals rather than going by gut feeling.

2. Inflation

One of the most significant risks of not using a SIP Calculator when investing in SIP plans is ignoring inflation. Inflation refers to the rate at which prices of goods and services rise over a predetermined period. Thus, if investors do not use the SIP calculator, they may suffer a loss of purchasing power over time, due to not accounting for inflation. Using a SIP calculator, investors can cater for inflation-adjusted returns, which ultimately enables investors to plan for retirement, children’s education, and other long-term goals appropriately.

3. Investment Horizon

Investors may overlook the importance of their investment horizon while investing in SIPs. The investment horizon refers to the number of years investors are willing to invest before encashing their investments. Investment horizon substantially affects the returns as the longer the investment period, the higher the returns. SIP calculators help investors calculate the expected returns over different investment horizons and plan for different goals.

4. Risk Tolerance

Investors may overlook their risk tolerance while investing in SIPs. Risk tolerance refers to an investor’s ability to withstand losses or market volatility. SIP calculators compute potential returns and gauge the associated risks, thereby allowing investors to plan a portfolio based on their risk tolerance levels.

5. Ignoring the Effect of Rupee Cost Averaging

Rupee cost averaging refers to investing a fixed amount of money at regular intervals. When investing in SIPs, rupee cost averaging has a positive impact with the volatile market. If investors do not leverage this strategy, they may lose out on potential gains. SIP calculators consider the concept of rupee cost averaging and ensure the same is factored into the calculations.

In conclusion, SIPs are a smart investment avenue, but it is essential to use a SIP Calculator to make informed investment decisions. Ignoring the need for SIP calculators may lead to the ignorance of inflation, risk tolerance, investment horizon, and investor belief systems, leading to poor returns on investment for investors.

SIP Calculators allow investors to compare full value, effective yield, absolute profit, and return on investments for different plans with varying tenures, and consider bank-expenditure and management fees before investing, thereby aiding good investment decisions. Such calculated investments can help investors plan better for their future financial goals.

Investment decisions should be based on in-depth research and consideration of the pros and cons of the investment avenue. Hence, it is highly essential to note that while making investment decisions, investors must gauge all the pros and cons of trading in the Indian financial market. SIP calculators are an excellent tool to obtain valuable insights into investments, and investors must make the most of them to secure their financial future.

Leave a Comment