SIP Calculator

A SIP calculator is an online tool that calculates the future value of your investments made via Systematic Investment Plans (SIPs) in mutual funds, Indian stocks, and US stocks. It helps visualise the impact of regular investments using the power of compounding.

Systematic Investment Plan (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. 

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.

How does a SIP Calculator work?

The INDmoney SIP calculator determines the future value of your invested money using this compound interest formula:

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

Where:

Let's break the SIP calculations down further and understand with an example:

Let's say Mr Abhay invests ₹3,000 monthly for 10 years expecting a 12% return. The components of his investment would be as follows:

• Monthly instalment (mA): ₹3,000
• Monthly Return Rate (mR): 0.0095 (or 0.95% per month)
• Number of Instalments (n): 10 years × 12 months/year = 120 instalments

Using the compound interest formula,

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

FV = ₹ 3000 × [{(1 + 0.0095)^120 - 1} / 0.0095] × (1 + 0.0095)

FV = ₹ 3000 × [(1.0095)^120 - 1 / 0.0095] × 1.0095

FV = ₹ 3000 × [2.109 / 0.0095] × 1.0095

FV = ₹ 3000 × 222.10 × 1.0095

FV = ₹6,72,642

The total amount Abhay invested over 10 years = ₹ 3000 × 120 = ₹3.60 Lakhs

Based on the SIP calculations, the estimated future value of his investment would be ₹6,72,642 or ₹6.72 Lakhs.

This means Mr Abhay's investment gained ₹3.12 Lakhs more.

How can a SIP Return Calculator help you?

Here are 3 ways showing how a SIP return calculator can help you:

1. Understanding the Benefits of Compounding: You can see how small, regular SIPs grow significantly over time due to compounding.
2. Rate Comparison: You can enter different expected return rates to see how they affect your final savings, helping you choose between more conservative or aggressive investment strategies.
3. Flexible Planning: With the SIP calculator, you can experiment with different instalment amounts, frequencies, and durations to check which one fits your budget and financial goals.
4. Target Setting: If you aim to save ₹12 lakhs by a certain date, the calculator can determine the monthly amount you need to start saving now to reach this goal.

Steps to use the INDmoney SIP Calculator 

You can use the INDmoney 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.

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.

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 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 daily 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.

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 car, 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 saving 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 in India

While a SIP calculator is a useful tool for forecasting investment growth, it has certain limitations that you should be aware of:

1. Fixed Return Assumption: The calculator assumes a constant return rate throughout the investment period and does not reflect the actual fluctuations in the market. As a result, it might not be as accurate as you think, 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.