April 24, 2024

Return Calculator

SIP CALCULATOR

Investment Amount is required

Expected Annual Returns is required

Investment Period is required

Regular investing is one of the best financial habits. An ideal investment instrument to help you stay invested with this is a Systematic Investment Plan or a SIP. This SIP calculator allows you to calculate the amount you will accumulate on your monthly investment.

What is SIP Calculator?

A Systematic Investment Plan (SIP) calculator is an online tool that calculates the return on your SIP investment based on an estimated rate of return and the future value of your investment after a certain number of years.

The manual computation can be slightly labor-intensive since SIPs typically involve a monthly payment. Since the holding period for each monthly contribution would be different at any given point in time, the returns for each of these payments will differ as well.

What are the types of SIPs available?

There are 4 different types of SIPs most commonly available in the market:

1. Flexible SIP: A flexible SIP allows you to make changes to the SIP investment amount.

2. Step-Up SIP: A step-up, also called a top-up SIP, will let you increase your SIP investment amounts at fixed intervals.

3. Perpetual SIP: A perpetual SIP is an investment that continues indefinitely, meaning there is no fixed tenure or end date to your SIP investment.

4. Trigger SIP: A trigger SIP is an investment that functions based on certain trigger events that you mention. For instance, you may set a trigger that the SIP should be doubled if the NAV of a scheme falls to a certain level.

How can a SIP Calculator Help You?

The Systematic Investment Plan calculator essentially gives investors a bifurcation of the future value of the SIP investment with two figures: the estimated return they can expect to make on the investment and the principal.

Therefore, you can use the SIP return calculator to get an overview of how your investment will grow over a certain holding period, assuming a certain rate of return and SIP contribution.

You can also factor in the effect of inflation when using the SIP calculator online, though not explicitly. You could do this by manually figuring out the nominal rate of return you’d expect to earn from your investment, based on your target real rate of return and the prevailing rate of inflation. Then, you just need to use the manually computed rate as your rate of return and enter it into the calculator to start investing in mutual funds.

Let us look at some examples to figure out how this calculator can help you.

Example Using SIP Calculator

As you know by now, the Systematic Investment Plan calculator helps you analyze three figures: your principal, the returns earned on the principal, and the future value of the investment.

It gives you an idea of how much you’d earn on your investment if you contribute X amount each month for Y number of years at a Z rate of expected return. You can plug these numbers into a SIP calculator online.

For instance, say you’re investing in your child’s college. You need ₹20 lakh at the end of five years, and you’re able to invest ₹20,000 each month starting today. You don’t mind an aggressive strategy, so you could expect to earn 12% p.a. on average over the next five years.

When you input the data into a calculator, it tells you the following:

For instance, if you want to invest a fixed amount every month for 5 years, you can calculate the future value of your investment through SIP returns calculator by:

  • Principal invested: ₹12 lakh
  • Gains: ₹4.5 lakh
  • Future value: ₹16.5 lakh

The SIP plan calculator can provide you information about how much returns you’d generate and what your investment will grow to over the next five years.

In this example, for instance, it helped you realise that you can fall short of your goal by ₹3.5 lakh.

If you have a certain amount in mind that you want to invest each month, a Systematic Investment Plan calculator should be your go-to tool.

How to use SIP Calculator?

If you know how much you want to invest in Mutual Funds every month, you can use the SIP Calculator to estimate the potential future value of your monthly investments.

To use this functionality, you need to provide 3 key inputs:

Option 1. If You Know Your Investment Amount

If you know how much you want to invest in Mutual Funds every month, you can use the SIP Calculator to estimate the potential future value of your monthly investments. To use this functionality, you need to provide 3 key inputs:

  • Monthly Investment Amount – This is the monthly SIP amount you plan to invest at regular intervals on specific SIP date.
  • Investment Duration – This is the period in years for which you plan to continue your SIP.
  • Investment Strategy – This determines the average annual return you expect from your investment. You can choose between an aggressive, balanced, or conservative strategy. Alternatively, you can also enter a specific rate of expected return using the “custom” setting.

After entering the above details in the Mutual Fund SIP calculator, just click on calculate to view the future value of your investments along with a short list of Mutual Funds that might be suitable to help you achieve your investment goal.

Option 2. If You Know Your Investment Goal Amount

If you are planning to invest in order to achieve a specific goal such as buying a new car or arranging for the downpayment of a new house, you would already know how much money you will need. In this case, you can use the sip amount calculator to figure out the monthly SIP you need to reach your investment goal.

To use this feature of the SIP calculator, you need to provide the following inputs:

  • Savings Goal – This is the amount that you have to save to reach your investment goal.
  • Time Period – This is the time period in years within which you plan to reach the investment goal.
  • Investment Strategy – You can choose an aggressive strategy to calculate based on high returns or a conservative or balanced strategy based on lower returns if that is more suitable. You can also choose the “custom” option to input a specific expected rate of return.

Once you have entered the above details, the SIP calculator will provide the monthly SIP amount you need to reach your investment goal within the specified investment tenure.

You can also use the “Adjust Goal Amount for Inflation” feature and select the appropriate rate of inflation to compute the higher SIP amount needed to reach your investment goal after accounting for the impact of inflation.

How does SIP Returns Calculator Work?

While you don’t need to do the computations manually since you can always find a SIP calculator online, it’s always good to understand where these numbers come from so you feel more confident about your investment strategy.

SIP calculators use the following SIP formula:
FV = P x {[(1 + r)n – 1] ÷ r} x (1 + r)

Where:

FV Future value of investment
P Principal contributions each month
r expected rate of return (per month)
n Number of contributions towards the principal

For instance, if you want to calculate the FV for a SIP with ₹1,000 monthly contributions for two years and an expected rate of return of 12%, this is what the formula would look like for you:

FV = 1000 x {[(1 + 0.01)24 – 1] ÷ 0.01} x (1 + 0.01)

Note that the r is 0.01 since our expected rate of return is 12% per annum, which translates to 1% per month.

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