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5 Smart Investment Strategies to Use with the Stock SIP Calculator

Created :  Author :  Pooja Category :  , Basics of stock market, Everything about Investing

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Investing in the stock market may seem intimidating, especially if you are a beginner. The uncertainty and volatility associated with the market can hold you back from investing. Here is where a Systematic Investment Plan (SIP) can help.

A SIP is a structured and disciplined approach to investing in the stock market. It involves consistently investing a particular sum of money at regular intervals for a long period in an asset, such as stocks or mutual funds.

Investing fixed sums regularly for a long time through various market conditions can help tide over short-term market volatility by reducing its impact on your portfolio. Furthermore, an SIP ensures that more units of the asset are purchased during falling market conditions and purchases fewer units during rising markets. When this is done over a sufficiently long period of 5 or maybe even 10 years, your overall investment cost gets lowered thanks to a phenomenon known as rupee cost averaging.

As a long-term investor, you enjoy significant benefits by investing in the markets through a Systematic Investment Plan rather than a lump sum investment.

What is a Stock SIP Calculator?

A stock SIP calculator is a unique tool designed to help you determine the potential returns you are likely to generate from a Systematic Investment Plan in a particular stock. The tool takes into account multiple factors such as the stock you wish to invest in, the quantity and the period of investment, among others.

By analysing these factors, the calculator provides an estimate of the corpus you are likely to accumulate at the end of the investment period. It also displays other crucial information, such as the principal amount of investment, the net profit, the total number of shares at the end of the investment period, the total rate of return from your investment and the annual rate of return.

How to Use a Stock SIP Calculator?

Using a stock SIP calculator is very straightforward. All you need to do is follow the three steps outlined below.

Based on your inputs, the calculator will generate a projection of the potential corpus accumulated over time. This projection can serve as a guide to assess the feasibility of your investments and provide insights into whether you need to make necessary adjustments to your contributions or not.

5 Smart Investment Strategies to Use with the Stock SIP Calculator

If you are planning to start a Systematic Investment Plan in a stock, here are 5 investment strategies that you can incorporate to boost the returns from your investments.

Every investment must have an end goal. The goal could be something as simple as an overseas vacation to something as essential as purchasing a dream home. Linking a SIP to a financial goal is one of the first steps you must take when commencing your investment journey. This will allow you to plan your Systematic Investment Plan better and could also make monitoring the performance of your investment easier.

For example, let us assume you wish to save up ₹20 lakh within the next 10 years for funding your child’s education expenses. Linking this particular financial goal of yours with a stock SIP can help you determine how much you need to contribute. You can even use a stock SIP calculator here to assist you in the calculation. By playing around with the input values in the calculator, you can easily identify the ideal investment period and quantity of stock you need to purchase to reach your goal comfortably.

Furthermore, this makes monitoring the progress of your investments easier as well. If at any point you feel that your stock SIP may not be able to produce the returns you expect due to underperformance, you can quickly take corrective measures to ensure that you get back on track to meet your financial goal.

Sticking to the same fixed contributions for a Systematic Investment Plan throughout your investment tenure is not an ideal way to create wealth in the long run. Instead, you need to adapt your investment to the changing financial and economic situations. In such cases, opting for a step-up SIP could be a smart strategy that can potentially boost the returns from your investment.

The step-up option in a Systematic Investment Plan lets you increase your contribution by either a fixed amount or a percentage of your original investment amount at regular intervals. Doing so lets you keep pace with inflation and your changing financial situation. Let us look at a hypothetical scenario to understand how a step-up SIP could be a smart investment strategy to increase your wealth-creation potential.

Assume you are an individual drawing ₹50,000 as a monthly salary. The organisation you work for increases your salary by 10% at the start of every financial year. You decide to start a stock SIP by contributing ₹10,000 each month for a tenure of 5 years.

Since your income is likely to go up by 10% each year, you decide to opt for the step-up option, where you increase your monthly contribution by Rs. 2,500 every year. In this case, the total amount you would have invested at the end of your chosen tenure would be as follows:

Year

Monthly Contribution

Total Amount Invested at the End of the Year

1st Year

₹10,000

₹1,20,000 (₹10,000 x 12 months)

2nd Year

₹12,500

₹1,50,000 (₹12,500 x 12 months)

3rd Year

₹15,000

₹1,80,000 (₹15,000 x 12 months)

4th Year

₹17,500

₹2,10,000 (₹17,500 x 12 months)

5th Year

₹20,000

₹2,40,000 (₹20,000 x 12 months)

Total

₹9,00,000

However, if you had not opted for the step-up option, you would have continued to contribute ₹10,000 each month throughout the entire investment tenure. Your total investment amount in this case would have just been ₹6,00,000 (₹10,000 x 12 months x 5 years).

As you can see, by simply choosing the step-up option in a stock SIP, you were able to invest an additional ₹3,00,000 (₹9,00,000 - ₹6,00,000). This additional investment amount would have enabled you to purchase more units of the stock, potentially increasing the returns from your investment.

Now that you know how a step-up Systematic Investment Plan works, you could use a stock SIP calculator to estimate the potential returns from your investment.

One of the most popular investment strategies many successful long-term investors use with a Systematic Investment Plan is the 7-5-3-1 rule. Each number in the 7-5-3-1 rule indicates a specific aspect of a Systematic Investment Plan. When implemented right, this strategy could potentially maximise the returns from your SIP investments. Here is a quick breakdown of this strategy.

The 7-5-3-1 strategy emphasises regular monthly contributions in a Systematic Investment Plan to last for at least 7 years to maximise its wealth-creation potential. This is because historical data has shown that it takes roughly 5 years for the impact of volatility on investments to reduce significantly. Staying invested for a period of 7 years not only reduces market volatility’s impact but also gives your investment the time to grow wealth.

The 7-5-3-1 rule states that investors must invest across five different asset classes to properly diversify their risk. In the case of stock investments, the asset classes include large-cap companies, undervalued companies, companies from emerging sectors, mid-cap or small-cap companies and international companies.

Another major aspect that the 7-5-3-1 investment strategy goes into detail is the emotional challenges investors must overcome when investing in stocks via a Systematic Investment Plan. Considering the unpredictable nature of the markets, equity investors often face three emotional challenges. Understanding and navigating them carefully are crucial for success. Here’s a quick overview of what they are.

Investors generally go through disappointment if the returns produced by an investment do not match up with their expectations. However, such feelings are natural and it is important to trust the share price fundamentals and be patient.

Investors may tend to get irritated if the returns from an investment dip lower for a year or two. Understanding that underperformance is a part of the wealth creation process and working through the feeling is essential.

Panic is a very common feeling that many long-term investors have to deal with. Sudden market crashes often evoke such feelings and may prompt investors to sell off their investments to protect themselves. However, it is important to realise that such crashes are inherent to the stock market and are only temporary. In fact, investors could instead use them as an opportunity to purchase more units.

The 7-5-3-1 rule also strongly suggests increasing the monthly contributions in an SIP every year. As we have already seen, stepping up your contributions, even by a small margin, can significantly increase your wealth-creation potential.

Now that you are aware of the 7-5-3-1 strategy, you can use it with a stock SIP calculator to determine the ideal combination for your investment portfolio. All you need to do is set the investment tenure in the calculator to 7 years. Then, pick 5 stocks, one from each of the 5 asset classes mentioned above. Finally, enter the number of units you can purchase each month. This should give you an estimate of the returns your stock SIP investments are likely to generate by the end of the investment period. That said, when using the calculator, do not forget to account for the yearly step-ups.

If you are planning to invest in more than one stock SIP, consider staggering your investments. For instance, assume you have 3 active SIPs. You could stagger them in such a way that you make monthly contributions for the first SIP on the first week, for the second SIP on the second week and the third SIP on the third week.

When you stagger SIPs, the outflow of money does not happen on a single day. Instead, it is spread out over multiple points in a month. This ensures that you retain liquidity in your bank account. Furthermore, investing in SIPs on different days of the month could also better negate the impact of market volatility or adverse price movements on your portfolio, especially in the long run.

Estimating the potential returns from staggered Systematic Investment Plans using a stock SIP calculator is relatively straightforward. The process is very similar to what you use when estimating the returns from multiple SIPs.

Trigger SIPs are another smart investment strategy that you can use to enhance the returns from your portfolio. Most Systematic Investment Plans let you set trigger points. Investments are only made when the set trigger points are activated. There are two types of triggers that you can set - a price trigger and a time trigger.

A price trigger ensures that an investment is made only when the price of a stock or mutual fund falls below a specific level. A time trigger, on the other hand, ensures that a lump sum investment is made if the market corrects beyond a set percentage point.

Investing in an SIP using triggers is a smart investment strategy that can potentially help you evade risk by preventing you from investing in the market at the wrong time.

Conclusion

A stock SIP calculator provides valuable insights into your investments and helps you make informed decisions. By adopting smart investment strategies such as the ones mentioned above in conjunction with the calculator tool, you can maximise your returns and achieve your long-term financial objectives much quicker.

If you are planning to set up a stock SIP, you need to first open a trading account and a demat account. Having these two accounts by your side can make your investment process a lot more seamless. Samco Securities offers a robust trading and demat account with a host of features and benefits. With Samco, you can set up a stock SIP within seconds and can also invest in a host of other financial assets. Sign up and start your investment journey today.

Disclaimer: INVESTMENT IN SECURITIES MARKET ARE SUBJECT TO MARKET RISKS, READ ALL THE RELATED DOCUMENTS CAREFULLY BEFORE INVESTING. The asset classes and securities quoted in the film are exemplary and are not recommendatory. SAMCO Securities Limited (Formerly known as Samruddhi Stock Brokers Limited): BSE: 935 | NSE: 12135 | MSEI- 31600 | SEBI Reg. No.: INZ000002535 | AMFI Reg. No. 120121 | Depository Participant: CDSL: IN-DP-CDSL-443-2008 CIN No.: U67120MH2004PLC146183 | SAMCO Commodities Limited (Formerly known as Samruddhi Tradecom India Limited) | MCX- 55190 | SEBI Reg. No.: INZ000013932 Registered Address: Samco Securities Limited, 1004 - A, 10th Floor, Naman Midtown - A Wing, Senapati Bapat Marg, Prabhadevi, Mumbai - 400 013, Maharashtra, India. For any complaints Email - grievances@samco.in Research Analysts -SEBI Reg.No.-INHO0O0005847