SIP Calculator – Systematic Investment Plan Calculator

Prospective investors can think that SIPs and mutual funds are the same. However, SIPs are merely a method of investing in mutual funds, the other method being a lump sum. A SIP calculator is a tool that helps you determine the returns you can avail when parking your funds in such investment tools. Systematic Investment Plan or SIP is a process of investing a fixed sum of money in mutual funds at regular intervals. SIPs usually allow you to invest weekly, quarterly, or monthly.

What is a SIP Calculator?

A SIP calculator is a simple tool that allows individuals to get an idea of the returns on their mutual fund investments made through SIP. SIP investments in mutual funds have become one of the most popular investment options for millennials lately.

These mutual fund SIP calculators are designed to give potential investors an estimate on their mutual fund investments. However, the actual returns offered by a mutual fund scheme vary depending on various factors. The SIP calculator does not provide clarification for exit load and expense ratio (if any).

This calculator will calculate the wealth gain and expected returns for your monthly SIP investment. It gives you a rough estimate of the maturity amount based on a projected annual return rate.

How can a SIP return calculator help you?

SIPs are a more disciplined and convenient way of investing compared to a lump sum. It helps create a savings habit and encourages long-term financial planning.

A SIP calculator online is a useful tool that shows the estimated returns you may earn after the investment tenure.

Few of the benefits of SIP calculators include –

1. Assists you in deciding the amount you want to invest.
2. Tells you the total amount invested.
3. Gives an estimated value of returns.

How do SIP calculators work?

A SIP plan calculator works on the following formula –

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

In the above formula –

• M is the amount you receive upon maturity.
• P is the amount you invest at regular intervals.
• n is the number of payments you have made.
• i is the periodic rate of interest.

For example, if you invest ₹1,000 per month for 12 months at an annual return of 12%, you first need to convert annual return into monthly return.

A common mistake is dividing annual return by 12. That gives 1% per month, which is not accurate because returns are compounded.

The correct formula is:

Monthly Return = {(1 + Annual Return)^1/12} – 1

For an annual return of 12%, the effective monthly return becomes approximately 0.95%, not 1%.

If 0.95% is compounded for 12 months, it gives 12% annually. Assuming 1% monthly would inflate the annual return.

Therefore, the monthly rate becomes:

i = (1 + 0.12)^(1/12) − 1 = 0.0095 or 0.95%

So,

M = 1,000 × ({[1 + 0.0095]^12 – 1} / 0.0095) × (1 + 0.0095)

This gives approximately ₹12,766 in one year.

Please note that the rate of return on a SIP depends on market conditions. It may increase or decrease, which changes the estimated returns.

How to use the SIP calculator?

Simply enter your monthly investment amount, the number of years you want to stay invested, and the expected annual rate of return.

Once you enter the values, the calculator instantly shows the estimated maturity amount at the end of the investment period.

Advantages of using a SIP calculator

• Helps plan your investments based on amount and tenure.
• Shows estimated maturity value at the end of your SIP period.
• Saves time by eliminating manual calculations.

A systematic investment plan calculator helps ensure your savings portfolio stays aligned with your financial goals and future requirements.