A SIP can have been invested over the years and it can be helpful to check its value and possible growth. A SIP Calculator can be used to calculate the future value of a continuous SIP based on values like monthly SIP investment, investment period and expected returns on investment. Estimating the value of an existing SIP, however, will need to account for the value of money invested already in it, the current value of the money invested and the value of the money that might be invested in the future. This gives a better idea of the time line in which the investment might develop.
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What Is the Current Value of an Existing SIP?
The present value of an SIP depends on the value of the mutual fund units acquired by investing in the previous instalments. This can vary from the total investment made, due to the volatility of mutual fund values with market movements.
For instance, if an investor has been making a monthly investment of ₹5,000 for 5 years, the total investment would be ₹3 lakhs (assuming he has paid all 60 instalments). The current value of the investments can be higher or lower than ₹3 lakh, depending on the performance of the scheme that is selected.
The current value can normally be viewed via the investor’s investment account, mutual fund statement, platform.
How Can a SIP Calculator Estimate Future Value?
A SIP Calculator is a tool that can be used to calculate the potential value of an investment after a certain period, based on the specified investment amount, expected return, and investment period. When investing in an existing SIP, investors should take into account the duration of the SIP and how much longer they plan on continuing the investment.
The investor who has been investing ₹5000 per month for 5 years, and wants to invest for the next 5 years, can use the calculator to calculate the value at the end of the extra 5 years.
Results are based on assumptions inputted in the calculator. It is an appraisal and not a fixed price.
Which Details Should You Enter?
To estimate the potential value of an existing SIP, investors should identify the monthly contribution, number of completed instalments, current investment value and intended future investment period.
The expected annual rate of return is another important input. Since mutual fund returns are market-linked, investors may use an assumed rate for illustration rather than treating it as a prediction of actual performance.
If the SIP amount has changed over the years, using a single monthly contribution may not accurately represent the entire investment history. In such cases, investors may need to consider different contribution periods separately.
How Does the Number of Years Affect the Estimate?
The investment period has a significant role in a SIP calculation because earlier contributions have more time to potentially grow. An SIP that continues for 10 years will generally involve more instalments than one that runs for five years, assuming the same monthly frequency.
A longer investment period also gives the earlier instalments more time to potentially benefit from compounding. However, market-linked returns can vary during the investment period.
What If the SIP Amount Has Increased?
Investors may increase the SIP amount as and when their income and finances change. This is a step up SIP, as they are often called.
The investor should have started investing ₹5,000 monthly and then raised the sum to ₹7,000 monthly. The actual sum invested is not adequately represented if the investor calculates the total investment based on the lower amount of ₹5,000.
What Should Investors Check Before Using a Calculator?
Investors must take into account the latest investment value and the investment period and monthly SIP amount. They should also consider any break in the SIPs or any changes in the SIP.
The calculator is a planning estimate and cannot be guaranteed. The actual returns of mutual funds may differ due to market conditions and performance of the chosen scheme.
Investors should also consider how the investment fits into their overall financial objectives, risk tolerances and time horizons.
Can a Demat Account Be Used for Investments?
Those investors who have shares and other eligible securities can open demat account and keep the securities in electronic form. The demat account does not affect the projected value calculation of SIP, and it is relevant depending on the type of investment being made.
Investors need to research the holding and transaction mechanism offered by the investment platform or fund house of their choice for mutual funds.
Conclusion
Estimating the value of an existing SIP requires looking at both the investment already accumulated and the contributions planned for the future. A SIP Calculator can help project potential future value using the monthly contribution, investment period and assumed return. Investors should use accurate figures, particularly when the SIP amount has changed or instalments have been missed. 5paisa provides investment-related tools and services that can help investors review and manage their investment plans.
