SIP Calculator

SIP Calculator

SIP calculator helps in estimating the value of your SIP, while considering the SIP amount, expected return and time. A Systematic Investment Plan (SIP) is a popular method of investing in mutual funds, where you invest a fixed amount regularly, monthly, weekly, or even daily.

What is SIP Calculator?

The SIP calculator is an online tool that calculates the value of your Systematic Investment Plan (SIP) investments. You need to enter details such as SIP amount, time period and return expectation, and the SIP calculator will show you the total amount of money invested, the estimated future value of your investment, and your total gains.

The SIP calculator is also a great tool to plan for specific goals, such as buying a house, funding children's education, or retirement. It can help in calculating the SIP value, the money you need to invest every month, based on the time period, return expectation and the goal amount.

Using the SIP calculator, you can also compare the results from different SIP investments based on return expectation and make an informed decision about which one suits your investment goal based on your risk tolerance.

How to use SIP Calculator?

The SIP calculator is simple to use and convenient, even for those who are new to investing. There are two ways to use the SIP return calculator:

To calculate the future value of SIP

If you want to calculate the future value of a given SIP amount, you should use this option. In this option, you can provide the following inputs:

• SIP Investment Amount: This is the fixed SIP amount you want to invest at regular intervals
• SIP Frequency: This can be daily, weekly, monthly, or quarterly
• Investment Duration: The duration in years for which you plan to continue your SIP
• Expected Returns: This is the expected rate of return on your investment

Once you follow the above steps, an SIP calculator shows you the total amount invested, the estimated future value of your investment, and total gains. 

To calculate the Target SIP based on the Goal Amount

If you want to calculate the SIP amount required to reach a future financial goal amount, you should use this option. In this option, you can provide the following inputs:

• Goal Amount: This is the target amount you want to achieve
• SIP Frequency: This can be daily, weekly, monthly, or quarterly
• Investment Duration: The duration in years for which you plan to continue your SIP
• Expected Returns: This is the expected rate of return on your investment.

Once you follow the above steps, the SIP calculator shows you the SIP amount required to achieve your future financial goal in your defined investment duration. This can be very helpful for you when planning your future financial life goals. 

The SIP based on goal amount is a very useful feature if you are working toward a specific goal, for example, buying a house, a car or planning for a world tour. 

How does SIP Calculator work?

An SIP calculator uses the following formula to calculate the future value of your SIP investment, and also reverse engineers this formula for when you are calculating the SIP amount based on the goal amount or future value. 

Future Value = SIP Amount × [((1 + i)^N - 1) / i] × (1 + i)

Where:

• N = Total number of SIP instalments
• i = Expected return 

Let’s understand how the formula works with the help of an example. Mr Abhay invests ₹3,000 monthly in a mutual fund for 10 years, expecting a 12% return. The components of his investment would be as follows:

• SIP Amount: ₹3000
• SIP Frequency: Monthly
• Expected Return (Per Year): 12%
• Investment Duration: 10 Years

Future Value = 3000 × [((1 + 0.0095)^120) - 1) / 0.0095] × (1 +0.0095)

In this example:

• Number of instalments = 120 (10 years * 12 months) SIP instalments
• 0.95% return rate per month equals 12% per annum

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 ₹6,72,107 or ₹6.72 lakh. This means Mr Abhay’s return on investment is ₹3.12 lakhs.

Advantages of Using the SIP Calculator

It is a crucial tool for financial planning, goal tracking, and making informed financial decisions. Let’s learn more about the advantages of the SIP calculator in detail:

Financial Planning: The SIP calculator can be a valuable financial planning tool, provided you know your monetary goals. You can use the tool to help you in selecting the optimal SIP, based on return expectation and time. You can also start different SIPs for different goals.

Comparison of Scenarios: You can compare different scenarios by changing factors like SIP amount, expected return, and investment frequency. You can see how a 1-2% change in return can affect your absolute return dramatically over the long term.

Informed Decision-Making: It can help investors to make informed decisions by providing a data-driven understanding of the potential outcomes of their investment choices.

Power of compounding: Albert Einstein called compounding the 8th wonder of the world, and well, it is. As more and more time passes, compounding does wonders for your investment, You can use the calculator above by changing the investment return, time, or both and see how compounding can do wonders when it works in your favour.

Achieving a Goal: Goal-based SIP calculator is one of the most used features in INDmoney. People are using it not just to calculate the initial SIP amount but also to adjust the SIP amount based on the progress they made toward the goal, and even change the investment plan based on changing market conditions.

SIP Calculator Examples

How to get ₹1 crore via SIP Calculator

A 1 crore portfolio is a dream in India. So we will use the SIP calculator to find out how much you should invest in SIP every month to achieve the ₹1 crore target. For this, we will use the goal amount feature.

Scenario 1: Return expectation - 14%, Time - 15 years. You would need to invest ₹17,693  every month for 15 years to reach a target amount of ₹1 crore

Scenario 2: Return - 14%, Time - 20 years. You would need to invest ₹8,522  every month for 20 years to reach a target amount of ₹1 crore

Scenario 3: Return expectation- 16%, Time - 17 years.  You would need to invest ₹6,659  every month for 17 years to reach a target amount of ₹1 crore 

Key takeaways 

1. An increase in time leads to a lower SIP amount 
2. Compounding works wonders over a longer time 
3. A higher rate of return can reduce the SIP investment and time needed to achieve a goal.

15-15-15 Rule in SIP Calculator

This famous rule tells you that if you invest ₹15000 every month for 15 years and earn a 15% return, your final amount would be close to ₹1 crore.

This is just an estimation, the actual amount would be ₹92,45,483
 

SIP vs Lumpsum: What to choose?

SIP and Lumpsum both are great tools, but serve different purposes. A lump sum investment involves investing a large sum of money in one go. This strategy is mostly chosen by investors who have a substantial cash windfall and want to invest it all immediately.

On the other hand, if you want to invest a fixed amount of money every month, a SIP would be a choice for you. SIP has many benefits, which involve disciplined investing, rupee cost averaging and less emotional decision making. By investing consistently over time, SIPs smooth out the impact of market fluctuations.

Taxation on SIP Investments

Taxation of SIPs depends on the type of mutual fund and the holding period of the investment. Since each SIP unit is considered a separate investment, they are redeemed on a first-in-first-out basis. For taxation purposes, under this method, it is assumed that units that were first purchased are sold. Let’s see taxation under different investment options.

SIP in equity funds 

SIP returns from equity funds are subject to capital gains tax depending on how long you hold the investment. If you redeem your investment within 12 months, short-term capital gains tax applies at a rate of 20%. Conversely, if you hold your investment for more than 12 months, your SIP returns will attract long-term capital gains tax. For long-term gains, up to ₹1.25 lakh is tax-exempt, and any amount exceeding this threshold is taxed at 12.5%.

SIP in debt funds

SIP returns in debt mutual funds are taxed at the applicable slab rate of the investors, irrespective of the holding period for investors.

SIP in ELSS mutual funds

By investing in tax-saving mutual funds like ELSS, you can claim a deduction of up to ₹1.5 lakh in a financial year under section 80C. ELSS has a lock-in of 3 years, but this is the lowest among the other 80C investment options.

How to invest in SIP with INDmoney?

Here are three easy steps to get you started with INDmoney SIP:

Choose a mutual fund 

With Indmoney, you have a wide range of options available, ranging from debt mutual funds, equity mutual funds, to ELSS. From the available options, choose a fund based on your investment objective and risk tolerance. You can filter different mutual funds based on mutual fund category, past performance, expense ratio, AUM, minimum investment and exit load. 

Select Investment options

After selecting the mutual fund, select the SIP start date, mutual fund amount and frequency of your investment. You can also consider a step-up SIP if you would like to increase your SIP amount annually. 

Invest and monitor

NACH mandate is available with INDmoney, where you select a date, and on your chosen date, a fixed SIP amount will be deducted from your account and invested in mutual funds. This saves from the hassle of manual investing and provides a disciplined approach. Set up the mandate and then just monitor the performance of your mutual fund.