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SIP and Inflation Calculator – Working and Benefits

Calculators have life simple for humans. They have the ability to compute the most complicated calculations and display results in just a few seconds. Calculators are easy to use and anyone from a school going child to an elderly human can use these tools to their advantage. Now one does not need to buy a calculator from the store physically. Online calculators are freely available and anyone accesses them from a laptop, computer a tablet, or even a smartphone with a decent internet connection.

For mutual fund investors, if they have started a mutual fund SIP or are planning on investing in mutual funds via SIP, they can use an online SIP calculator. Let us find out what an online SIP calculator is and how one can make the most out of this tool.

What is a SIP calculator?

A Systematic Investment Plan (SIP) is one of the two ways to invest in mutual fund schemes (the other way being lumpsum investing). Anyone who wishes to invest small fixed sums regularly instead of making a large principal investment can opt for the SIP option. Let’s say you want to build a corpus of Rs. 6 lakhs to buy a new car. Assuming that the mutual fund scheme in which they invest offers an average return of 8%, a monthly SIP of Rs. 9000 should be enough for them to achieve the desired corpus at the end of their investment horizon. And such calculations can be easily done using an online SIP calculator.

An online SIP calculator is a simple and easy tool that lets potential mutual fund investors determine the total returns earned from their SIP investments over a certain period of time. This calculator is easily accessible to which any layman can use by just putting in a few details.

How does the SIP calculator work? 

The formula on which the SIP calculator is based is stated below:

M = P × ({[1 + i] n – 1} / i) × (1 + i)

Here –

  • M’ stands the total sum that you receive upon maturity
  • P’ is the sum you invest at periodic intervals
  • n represents the number of monthly SIPs you have made during your investment journey
  • i is the periodic rate of interest

While calculating future returns is crucial, it is equally important for investors to consider the rate of inflation. For example, if your investment scheme offering an average return of 6% and the estimated rate of inflation is 4% then your actual returns are only 2%. Investors can plan their finances more adequately by using an online inflation calculator.

What is an inflation calculator?

An online inflation calculator is easily available, and anyone can use it freely. Anyone can easily use this calculator to determine the purchasing power of a certain amount. A time-saving tool, the online inflation calculator calculates your queries and displays results within a few seconds. If you want to manually calculate the purchasing power of a certain amount it may take a while before you derive to the conclusion. However, using an inflation calculator saves time as this online tool produces results almost instantly.

How to use the online inflation calculator?

As mentioned earlier, it is easy to use the inflation calculator and one needs to follow these simple steps to get desired results–

  • Investors first need to enter the amount whose future spending power value they want to determine
  • Next, they must enter the number of years after which they want to determine the purchasing power of the specified amount