While SIP calculators are pretty straightforward and easy-to-use, there are still a lot of things investors should be careful about. Read this post to know five common mistakes new investors commit when using an online SIP calculator.
It is essential for investors to have at least an idea of what their SIP investment would generate at the end of the investment period. To eliminate the confusion and drudgery of manual calculations, there are now SIP calculators available online.
Just enter the SIP amount, SIP duration, and expected returns to get a fair idea of the maturity amount. But while return calculators are easy-to-use, there are still a lot of mistakes that new investors often commit. Here is a list of 5 of the most common mistakes one should avoid when using SIP calculator
- Entering a Higher SIP Amount: It is imperative for investors to select a SIP amount that they can easily invest every month. The SIP amount should be in line with your objective. So, make sure that you avoid entering an amount that you cannot really invest every month. Select an amount that is affordable, and you always have the option to increase it further as your earnings improve.
- Not Having a Fixed Investment Horizon: While it is recommended that you should remain invested in a few types of funds like equity funds as long as you can, it is still vital to have a fair knowledge of how long you’ll remain invested. The calculator uses your SIP amount, duration and expected returns to calculate the maturity amount. Thus, rather than entering a random number you should know the duration for which you’d continue your SIP when using the calculator.
- Overestimating the Expected Returns: You can get a fair idea about the returns you should expect from a scheme by going through its past performance. While there is no saying whether or not a scheme would continue to deliver the same returns in future too, it is still one of the best ways to get a more accurate returns calculation. When using the calculator, never overestimate the expected returns from the investment to get more accurate results.
- Not Considering Your Risk Appetite When Calculating: In a bid to generate higher returns through their SIP investment, most investors often do not consider their risk appetite. There are major differences in the level of risk the investor needs to carry between different types of mutual funds. While equity funds are known to be the riskiest, debt funds are considerably safer. When calculating the SIP returns, make sure that you do consider your risk appetite when selecting the scheme.
- Not Having a Fixed Goal in Mind: Any investment without an objective is similar to a ship navigating in the sea without a rudder. Without a fixed target, you’ll never know the right SIP amount or the duration for which you should invest. Before using a SIP return calculator, fix an objective and then try to match the maturity amount with your expectations.
Keep these points in mind when using a SIP calculator to get the most accurate maturity amount calculation. While there is no guarantee that your SIP investment would actually generate the returns promised by the calculator, the online tool is still an excellent way to get an estimate of how your investment can turn out in future. Use the calculator correctly, and it shouldn’t be difficult for you to select the right SIP for your investment.