What is a SIP Calculator?
The SIP calculator is a tool that estimates the future value of an SIP investment. It requires some basic inputs, such as the monthly SIP investment amount, the period of the SIP in a number of years, and the annual growth rate of the investment. Using these inputs, the SIP calculator shows the total invested amount, the total return generated, and the total investment value at the end of the investment period.
The SIP calculator assumes the monthly SIP amount is invested on the first day of every month. The formula below calculates the returns.
Formula used:
FV = P * {[(1 + r)n – 1] ÷ r} * (1 + r)
Where,
FV = Future Value of your SIP Investment
P = Monthly SIP amount
r = Monthly rate of return (annual rate divided by 12)
n = Total number of months
How does the SIP Calculator work?
Let's understand how the calculator works with an example. Let's say we want to calculate the returns on a monthly SIP of ₹5000 per month for 10 years with an annual growth rate of 12% per year. We can enter these input values into the SIP calculator in just a few clicks. After applying the above formula to our example we get the estimated future value (FV) to be ₹11,20,179.
₹11,20,179 = ₹5000 x {[ (1+0.01)^120 - 1] / 0.01} x (1+0.01)
Further, this total value is broken down into two parts. The first part is the invested amount which is ₹6,00,000. This is the total of all individual SIP installments invested over time. In this example ₹6,00,000 = 10 years x 12 months x ₹5,000 per month.
The second part is the total returns of ₹5,20,179. This is the total amount by which the investment has grown over time. This represents a total return percentage of 86.7% over the invested amount.
SIP Calculator for Mutual Funds
The SIP Calculator for Mutual Funds calculates the returns from an SIP investment in any of the top Mutual Funds in India. This calculator needs no input for the growth rate of investment. The calculation is based on the actual historical returns of the selected mutual fund. The monthly SIP amount is assumed to be invested on the first of every month during the investment period.
Does the SIP Calculator adjust for the fund's expense ratio?
Yes. For Mutual Funds, the historical returns are calculated using the funds' historical NAV. When reporting the NAV, the mutual fund house (AMC) adjusts for the applicable expense ratio. Hence the impact of the expense ratio is already captured in the NAV and historical returns. This means the returns calculated are adjusted for the fund's expense ratio.
How accurate is the Mutual Fund SIP calculator?
The calculator uses the actual historical returns of the selected mutual fund. This means the calculated total value is an accurate estimate of a SIP investment in that fund. However, in a real-world scenario, the returns may vary slightly depending on the exact SIP date that is selected. Since the NAV would vary slightly on each SIP date in the month that may impact the calculations. There is minimal impact on accuracy over longer investment periods.
SIP Calculator for Indian Stocks
The SIP Calculator for Indian Stocks calculates the returns of an SIP investment in the top Indian Stocks or Shares. The calculator takes the number of shares to buy per month as an input instead of a constant monthly investment amount. This is required since a minimum of 1 share must be bought in the Indian market. It is not possible to buy less than 1 share. As different stocks will have different prices in the market, the monthly SIP investment amount depends on the selected stock.
For example:
A SIP of 1 Share in Tata Motors will mean a monthly SIP amount of approximately ₹790
A SIP of 1 Share in HDFC Bank will mean a monthly SIP amount of approximately ₹1804
A SIP of 2 Shares in Zomato Ltd will mean a monthly SIP amount of approximately ₹565
The above examples are based on the stock prices as on 2 December 2024.
This means the exact monthly SIP amount may vary slightly each month depending on the stock price level. The calculator needs no input for returns. The returns are calculated using the historical prices of the selected stock. The calculator assumes that the stock is purchased on the first day of the month in the investment period. The period of SIP can be easily adjusted.
How are dividend payments adjusted in the SIP Calculator?
Dividend payments are not accounted for in the returns calculation for the SIP Calculator. Dividend payments from stocks are received directly in the investor's bank account. These are over and above the returns earned from the SIP investment in that stock. The SIP calculator only calculates the returns earned by the price increase in the Stock over time.
Does the SIP calculator factor in Brokerage and STT charges?
No. The SIP calculator does not adjust for the brokerage or STT (securities transaction tax) charges that may apply when investing in Indian Stocks. These charges vary across different brokers and may impact the actual returns from Indian Stock SIP investments.
SIP Calculator for US Stocks
The SIP calculator for US stocks calculates the returns from an SIP investment in the top US Stocks from India. The calculator takes the monthly SIP amount as input. Fractional investing is supported when buying US Stocks. Fractional investing means being able to buy less than 1 share (a fraction) of a US Stock. This allows keeping the monthly SIP amount constant and possibly less than the price of 1 share of a US Stock.
For example:
A SIP of ₹100 in Apple, Inc (AAPL) will mean buying 0.004975124378 shares of Apple, Inc
A SIP of ₹100 in Amazon, Inc (AMZN) will mean buying 0.005679559266 shares of Amazon.com Inc. (AMZN)
A SIP of ₹100 in Nvidia Corp, (NVDA) will mean buying 0.008540438979 shares of Nvidia Corp. (NVDA)
This is an important feature as the price of 1 share of Apple, Inc in Indian Rupees is ₹20,292. This might be quite high for an investor. Fractional investing makes US Stocks SIP much more affordable and this is supported in the SIP calculator for US Stocks too.
The historical returns of the selected US Stocks are used as an input to the calculator. It is assumed that the monthly SIP investments are invested on the first of every month. The period of SIP investment is an adjustable input too.
Does the USD-INR exchange rate affect the Calculated Returns?
Yes. When investing in US Stocks from India, the investor can gain in two ways. One is when the price of the US Stock goes up, this is the capital gain on investment. The second is when the value of the US Dollar appreciates vs. the Indian Rupee. This additional source of return is quite significant given that the USD has appreciated almost 18% vs. INR over the last five years.
The SIP calculator for US Stocks considers this second source of return and highlights this as a US Dollar Returns component.
Important Questions about SIP Calculator
Are the SIP Calculator returns pre-tax or post-tax?
The returns shown by the SIP Calculator are Pre-Tax, meaning they are not adjusted for any applicable taxes. When selling a mutual fund, Indian stock, or US stock investment, capital gains taxes apply to the returns earned during the investment period. The SIP calculator shows the total returns and investment value without adjusting for applicable taxes.
For example:
A SIP of ₹10,000 per month over 10 years at 12% annual return gives a total value of ₹22,40,358 at the end of 10 years. Out of this, the total invested amount is ₹12,00,000 and the remaining ₹10,40,358 are capital gains. There is a capital gains tax applicable on this amount. Currently, the long-term capital gains tax for Equity mutual funds is 12.5% which translates to a tax liability of approximately ₹1,30,044.
Are the returns adjusted for inflation?
No. There is no adjustment for inflation in the total gains and total investment value calculated by the SIP calculator. This is also known as the nominal gain value that is not adjusted for inflation.
For example:
A SIP of ₹5000 per month over 10 years at 12% annual return gives a total value of ₹11,20,179 at the end of 10 years. This is the nominal value. If we adjust this value for inflation at the rate of 5% per year, the inflation-adjusted value would be ₹ 6,87,692. This means something that costs ₹ 6,87,692 today would cost ₹11,20,179 in 10 years if prices go up by around 5% per year.
What are the advantages of the SIP Calculator?
The SIP calculator is a great tool for planning financial goals. It can be used to estimate the amount of SIP required to reach a target goal amount. It can also be used to calculate the time required to achieve a target goal amount given the monthly SIP amount is kept constant.
For example:
Let's say a 30-year-old person wants to plan the purchase of their first home. They have decided on a target amount of ₹2Cr for this home goal. Further, the planned timeline for this goal is in the next 15 years, when he is 45 years of age. Using these inputs and assuming an annual growth rate of 12% the SIP calculator tells you the monthly SIP amount required to achieve this goal will be approximately ₹42,023.
Now, let's say this monthly investment amount is too high to fit in his budget, the SIP calculator can help you quickly adjust the goal timeline a little further to say 20 years when the person is 50 years of age. At the new goal timeline of 20 years, the new required monthly SIP investment gets reduced to ₹21,473. This is much more affordable.
Another example:
Let's say the monthly SIP investment amount is fixed at ₹10,000 per month and we want to plan for the purchase of a car that will cost ₹10,00,000. Using these inputs in the SIP calculator and assuming a growth rate of 12% we can find the period required to achieve this goal. In this case, the period required is around 6 years.
This shows how the SIP calculator is a great tool to manage and plan financial goals.
How accurate are the return calculations?
The calculations are accurate given the input variables and the defined calculation formula. There are a few simplifying assumptions that are made, for example, assumptions on monthly SIP amounts invested on the 1st of every month. However, over longer investment periods, these assumptions will not have a major impact on the SIP calculator's accuracy.
