SIP Calculator

What is a SIP Calculator?

A SIP calculator is a free online tool that helps you calculate the potential returns on your investments made through Systematic Investment Plans (SIPs) in Mutual Funds, Indian Stocks, and US Stocks. 

It simplifies financial planning by providing a clear picture of how much your money could grow over time based on your SIP contributions, investment horizon, and expected rate of return.

What is SIP?

SIP stands for Systematic Investment Plan. It is an automatic and organised way of investing in mutual funds and stocks through which you can automatically invest a fixed amount of money at regular intervals - such as monthly or quarterly - into a chosen mutual fund or stock. You can set up these payments via UPI AutoPay or an e-NACH mandate.

The actual benefit of a SIP comes from compounding. Here's how it works: the money you initially invest earns interest. Then, the next month, both the principal amount and the interest from the first month earn interest. 

Let's break this down further and understand with an example:

Suppose you input a monthly SIP of ₹1,000 for 5 years with an expected return of 12% annually, the SIP calculator would show a total corpus of approximately ₹82,000. This includes your total contributions (₹1,000 x 12 months/year x 5 years = ₹60,000) and the estimated returns generated on your investments (around ₹22,000).

The other significant advantage of SIP is 'averaging.' Since you invest the same amount of money regularly, you purchase more units of a mutual fund when its NAV is less and fewer units when its NAV is high. Similarly, in the case of stocks, you purchase more of them when prices are low and fewer shares when prices are high. 

Over time, this 'averaging' helps smooth out the purchase cost of your investment. So, with SIPs, you benefit from both high and low market phases without the need to predict market movements, effectively reducing the risk of investing at the wrong time. This makes SIP a less stressful way to invest as it handles market fluctuations through a steady and disciplined investment approach.

Who should use the SIP Calculator?

The SIP calculator is a valuable resource for anyone investing through SIPs. It helps you calculate your monthly investments and the total amount you'll accumulate over time with the benefits of compounding. Here's how it helps different investors:

1. New Investors: If you have recently started investing, the SIP calculator can help you experiment with different investment amounts, durations, and return rates to visualise how much your final corpus would be after the set duration.
2. Goal-Oriented Investors: Whether you're saving for retirement, a child's education, or a down payment on a house, a SIP calculator can help you determine the ideal SIP amount you need to invest to achieve your financial goals within a specific timeframe.
3. Existing SIP Investors: Even if you've already invested through SIPs, the SIP calculator can be a valuable tool to track your progress and adjust your investment strategy. You can use it to see how much closer you are to reaching your goals and potentially explore options to increase your SIP amount or shorten your investment horizon.

How to use the INDmoney SIP Calculator?

You can use the SIP calculator in just 4 easy steps!

Step 1: Enter your SIP amount

It is the fixed amount you plan to invest regularly in your chosen mutual fund scheme or stocks through SIPs. It can be any amount you're comfortable with, considering your financial goals and budget.

Step 2: Choose your investment period

Choosing the length of your investment is the next step after determining the amount you want to contribute each month. Depending on your financial objectives, this time frame could be anywhere from a few years to several decades. The force of compounding usually works better for longer investing periods.

Step 3: Enter the estimated annual return rate

Enter the expected annual return rate for your chosen mutual fund. Due to market fluctuations, it might be difficult to predict exact returns. But you can estimate based on the fund's past performance and market trends

Step 4: Calculate your approximate annual returns

After entering the investment amount and frequency, the SIP calculator will calculate the estimated Future Value of your SIP. This will give you a clear idea of what you can expect your investments to accumulate over your selected time period.

On INDmoney, you can use the Step-Up SIP option. This feature allows you to modify your SIP frequency based on your financial goals and budget.

How can a SIP Return Calculator help you?

Here are 3 ways showing how a SIP calculator can help you on your financial journey:

1. Compounding Power: You can see how small, regular SIPs grow significantly over time due to compounding.
2. Plan Flexibility: With the SIP calculator, you can experiment with different SIP amounts, frequencies, and durations to check which one fits your budget and goals.
3. Realistic Returns: You can understand the potential returns you could achieve by investing in SIPs based on your investment horizon and risk tolerance.

How does a SIP Calculator work?

The SIP calculator determines the future value of your SIP investment using a compound interest formula:

FV = mA × [{(1 + mR)^n - 1} / r ] × (1 + mR)

Where:

• 'FV' (Future Value) is the total amount you'll have at the end, including your invested amount and the returns earned.
• 'mA' is your monthly SIP amount.
• 'mR' is monthly rate of return. 
• 'n' is the number of months the SIP is held.

Example:

Let's say you invest ₹3,000 monthly for 12 years (expecting a 10% annual return).

• Monthly SIP investment (P) : ₹3,000
• Annual Return Rate (r) : 10% (0.10 as a decimal)
• Monthly Return Rate : 0.10 / 12 = 0.0083 (or 0.83% per month)
• Number of Instalments : 12 years × 12 months/year = 144 months

Hence,

FV = ₹ 3000 × [{(1 + 0.0083)^144 – 1} / 0.0083] × (1 + 0.0083)

FV = ₹ 3000 × [(1.0083)^144 - 1 / 0.0083] × 1.0083

FV = ₹ 3000 × [2.287 / 0.0083] × 1.0083

FV = ₹ 3000 × 275.65 × 1.0083

FV = ₹8,33,837

The total amount you invested over 12 years = ₹ 3000 × 144 = ₹4.32 Lakhs

The estimated future value of your investment is ₹8,33,837 or ₹8.33 Lakhs.

This means your investment gained ₹4.01 Lakhs more.

Understanding the Output

The predicted future value of your SIP investments after the investment period is the result that the SIP calculator provides. In the above case, if you invest ₹3,000 every month for 12 years with an annual return of 10%, the SIP calculator shows that you'll end up with ₹8.33 Lakhs.

This is the total amount of wealth you could accumulate if the annual return rate remains constant throughout the length of the investment. You may assess the effectiveness of SIP as an investing plan by using the calculator, which frequently displays the total amount invested as well as the interest generated.

Benefits of using a SIP Calculator

A SIP calculator, often referred to as a SIP return calculator, is an essential tool for anyone interested in investing in mutual funds and stocks using Systematic Investment Plans (SIPs).

1. Assists in Financial Planning: A SIP calculator provides detailed projections of potential returns from mutual fund or stock market investments. This helps you align your investment strategy with your financial goals, such as saving for education, buying a home, or planning for retirement. With these precise calculations, you can set realistic saving targets and commit to an investment plan that suits your long-term objectives.
2. Simplifies Investment Choices: The SIP calculator provides a straightforward way to compare different investment options like Mutual Funds, Indian Stocks, or US Stocks. By entering variables like investment duration, expected return rates, and monthly amounts, you can easily see how each choice might perform over time. This direct comparison helps simplify your decision-making process, enabling you to select the investment that best aligns with your financial goals and risk tolerance.
3. Easy to Customise: The SIP calculator is versatile. You can adjust monthly investment amounts, the period of investment, and expected returns. This adaptability allows you to revise your investment plans based on changes in your financial situation, goals, or risk tolerance.
4. Educates about the Effects of Compounding: Beyond calculations, the SIP calculator educates investors about the benefits of consistent investing and the impact of compounding over time. By showing how regular investments grow, it encourages a long-term disciplined approach to wealth creation.

Limitations of using a SIP Calculator

1. Doesn't Account for Market Changes: SIP calculators use a fixed rate of return and don't reflect the ups and downs of the market. This means they might not give you an accurate picture of what your investments will actually be worth, especially in volatile (rapidly changing) markets.
2. Excludes Fees and Taxes: It doesn't factor in costs like expense ratios, exit loads, or taxes on your returns. These can lower your actual earnings.
3. Assumes Fixed Investment Amounts: The calculator assumes you'll invest the same amount regularly and doesn't consider that you might want to increase your investments as your income grows.
4. Ignores Behavioural Factors: It doesn't take into account personal behaviour that can influence your investment, like the tendency to react to market highs and lows, which can derail your investment plans.