Investing your money wisely now leads the list of ways to multiply your wealth over a longer time. When it comes to investing, there are many options. Commonly, the two best ways to make this happen are mutual funds and traditional investments. Besides, you can easily manage the money at your disposal and invest regularly using a Systematic Investment Plan (SIP). Traditional investments, on the other hand, are made in fixed deposits (FDs), Public Provident Fund (PPF), gold, and real estate. With a mutual fund sip calculator you can check how much money you can gain. The decision to choose the right option must be based on your targets, risk tolerance, and investment period.
How to Calculate SIP Returns in Mutual Funds vs Traditional Investments
Find out how the SIP can calculate the returns earned in savings in mutual funds, and then see how they go against traditional investment channels.
1. Understanding SIP: SIP or Systematic Investment Plan is the approach to investment in mutual funds wherein you invest a constant amount periodically, generally monthly. As time passes, this regular deposit earns you the units in the fund, and the quantity of units is the fund’s price on the date of investment. Consequently, the growth of mutual fund unit prices leads to the growth of your investment, and you can monitor your SIP returns.
2. Traditional Investment Returns Calculation: Conventional investments, such as fixed deposits (FDs) or savings accounts, usually provide a constant income over a certain period. In other words, when you deposit money in an FD account, the bank or an institution will pay you back at the end of the period, the exact interest rate they gave you at the beginning. The income that can be obtained from regular investments is easier to find as the interest rate is known in advance.
3. Impact of Compounding: SIPs enable investors to compound their returns by regularly investing a fixed amount. Thus, the returns originating from their investment not only do not get depleted but are allowed to increase. If you continue with your plan of being a shareholder for a period, you are on track to give more value to your money because the compounding results are amplified.
4. Market Fluctuations and Risk: Unlike traditional investment, the price of mutual funds can be affected by market fluctuations, so that it can go to any level on the chart based on the performance of the underlying assets. That is a clear risk, which is the result of volatility in the asset market. Similarly, the variable nature of the investment can cause the SIP returns in mutual funds to differ the most based on the market conditions.
5. Flexibility of SIP vs Fixed Returns: Your investments are easier to manage with SIPS, as you are given more rights to switch from higher contributions to lower contributions or even stop them whenever you want. This way, you can alter your SIP if your economic conditions go up or down. On top of that, mutual funds can be a direct source of high income, especially if you plan to stay productive over a long period.
Final Words
Overall, these investments are both advantageous and risky. Under normal circumstances, mutual funds allow for better professional management than traditional investments. However, traditional investments offer more hands-on control but require more experience and effort. The selection of the two of them depends on your financial goals and risk tolerance. Many people consider mutual funds a quicker and more secure way to increase their wealth.
