SIP Calculator

Systematic Investment Plan (SIP) is a method of investment, wherein a fixed amount is automatically deducted at regular intervals from the investor’s linked bank account and invested in the mutual fund scheme of the investor’s choice. The duration of investment can be daily, monthly or yearly. 

As opposed to lump sum investing (a one-time investment), SIP promotes disciplined savings among investors and leverages rupee-cost averaging to manage market volatility.

• Helps in Goal-based investment planning: The Monthly SIP calculator allows investors to estimate investment returns based on their mutual fund SIPs. The calculator also helps them determine the monthly investment or SIP required to reach a target corpus within a specified timeframe.
  

• Supports different investment approaches: SIP calculator allows investors to estimate returns on their monthly SIPs, yearly SIPs and lump sum (one-time) investments. This helps investors compare different investment methods and choose the one that best fits their cash flow and financial goals.
  

• Step-up SIP investment Calculator: Step-up SIP is another calculator feature that allows investors to incorporate an annual increase in their SIP amount. This helps align investments with future salary increments and can significantly increase the final corpus without requiring a large initial investment.
• Helps in comparing different investment parameters: By changing the values of the variables given in the calculator such as the SIP amount, investment tenure and expected returns, investors can identify a strategy that best suits their financial goals and budget.
• Shows a clear break-down of investments and its returns: The calculator displays the total invested amount and estimated returns separately. This helps investors understand how much of the final amount comes from their own contributions and how much comes from the investment growth.
  

• Helps in making better investment decisions: The calculator provides an estimated view of future outcomes before investors commit their money. This helps them make more informed investment decisions and set realistic expectations regarding wealth creation.

• Saves time and gives accurate results: Instead of calculating the results using complex mathematical formulas, investors can instantly calculate the expected returns and required SIP amounts accurately using the SIP return calculator. This not only eliminates any scope for human error but also makes investment planning simpler, faster and more accessible.

The Paisabazaar SIP Investment Calculator ask you to enter the following three inputs:–

• Monthly SIP – The amount you wish to invest every month.
• Expected Rate of Return (p.a.) – The interest rate you expect on your SIPs during the tenure.
• Investment Duration/Tenure – The number of years for which your investment will stay invested with Mutual Fund AMCs.

Our MF SIP Calculator displays the following output: –

• Total Invested Amount – The data lets you know how much money you have invested during the tenure.
• Estimated Returns – The data shows the approximate returns on account of invested money.
• Total Value of Investment – It includes the SIP invested and estimated returns on your investment.

There are three primary methods to calculate returns on your mutual fund SIPs, absolute return, CAGR and XIRR. Let’s briefly know about each one along with their formulas:

• Absolute Return is the gain or loss experienced by a mutual fund scheme or portfolio during a specific time period, which is usually less than 1 year. It is expressed in percentage and unlike relative return, it is calculated based on the fund’s own performance, independent of any comparison to and does not compare it to other indices or standards.
  
  Formula for Calculating Absolute Return = [(Ending Value - Initial Value)/ Initial Value]*100

• CAGR (Compound Annual Growth Rate) measures the annual rate of return of a mutual fund scheme over a specified period of more than a year. It represents how an investment grows from its starting value to its ending value over time, assuming the gains were reinvested at the end of each year. This method of return calculation can be useful in comparing the performance of different stocks or uncorrelated investments.

Formula for Calculating CAGR = CAGR=(( BV/EV )1/n −1)×100

where:

EV=Ending value

BV=Beginning value

n=Number of years

• XIRR (Extended Internal Rate of Return) measures returns when money is invested at various points rather than all at a point in time.
• measures the annual rate of return of a XIRR - 

Formula to calculate SIP maturity amount: FV = P [ (1+i)^n-1 ] * (1+i)/i 

where:

FV = Future Value

i = Rate of return

P = Investment amount

n = Number of installments

The value of ‘i’ is calculated as {(1 + Annual Return)^1/12} – 1

Let's take an example

For instance, Aashvi invested Rs 10,000 monthly in an SIP for 10 years. The expected annual rate of return is 12% p.a.

How to Use Paisabazaar’s SIP Calculator for Planning Multiple Goals

Most people invest to generate wealth for meeting multiple financial goals in their lives such as for financing their child's higher education, funding house down payment, for their retirement, etc. Paisabazaar’s SIP Calculator helps you plan for each of these goals separately, so you know how you need to plan your finances and investment contributions to reach your goals. 

Here’s a rough guidelines to achieve the same:

• Identifying the financial goal(s) you're investing for.
• Categorise your goals as per investment horizons to determine mutual fund type you should use.
• Factor in inflation and estimate the future cost of your financial goal.
• Use Paisabazaar’s SIP Calculator and toggle to the goal-based option to determine SIP amount required for each goal individually.
• Set up separate SIPs for each goal.
• Review and rebalance your mutual fund investment portfolio periodically.

With a monthly SIP investment of Rs 5,000 @ 12% p.a. returns, you can accumulate Rs 2.18 lakh in 3 years, Rs 4.12 lakh in 5 years and Rs 11.62 lakh in 10 years, stating the power of long-term compounding.

SIP calculators provide projected or estimated returns based on a fixed rate of return. It does not consider the exit load and expense ratio. Also, the calculator does not factor in inflation, capital gain taxes and market fluctuations, which can reduce the net returns.

In this, the actual market performance is not included. Systematic Investment Planning includes multiple investments at different time frames and therefore, XIRR, i.e., Extended Internal Rate of Return, is used to calculate actual SIP returns based on real cash flows (inflow/outflow). XIRR provides a "money-weighted" return, considering that the first SIP was invested for 12 months, the second investment for 11 and so on.

Factors That May Affect Your Mutual Fund Returns

• Exit load, expense ratio, brokerage or platform fees and transaction charges can reduce your overall returns.
• Holding your mutual fund investments for a longer period maximises your returns due to the power of compounding. 
• Prolonged bear markets can reduce the returns on your mutual fund investment.
• High inflation and long-term capital gain taxation can reduce the net profits on your investments.
• Pausing or stopping your SIPs can also affect your long-term gains.

Disciplined Investing

Starting an SIP early encourages disciplined investment as you set aside a fixed portion of your income every month/quarter/half-yearly/annually for future savings. This leads to long-term wealth creation as the return on your investment starts earning more returns over time due to the power of compounding. 

Rupee Cost Averaging

Investing early through a systematic investment plan every month helps you to average out the cost of investment. It reduces the risk of market timing as you buy more units when the market is low and fewer units when the market is high. This reduces the impact of market fluctuations over time and potentially lowers average purchase costs. 

Power of Compounding

Opting for SIP ensures that you regularly contribute a fixed amount in a mutual fund scheme for a specified time frame. Each SIP amount adds to your total investment amount. Compounding happens when you stay invested and the return on your investment starts earning more returns over time, thereby, helping your invested sum to grow faster.

Let’s take an example 

Suppose you have started investing Rs 5,000 in mutual funds via monthly SIP method at the age of 22. On the other hand, your friend Mohit has started investing Rs 5,000 in mutual funds through SIP at the age of 28. Assuming the annual rate of return to be 12%. At the age of 50, the final corpus would be–

To summarise, if you want to make the most of your investments, start SIP early.

How Much Should You Invest in SIP?

The corpus required for emergency purposes should be the first savings an investor should consider before starting investing in an SIP.

Financial Goals

The first step in SIP planning is to identify your financial goals. Whether you start SIP for your child's education, your retirement or dream travel. Once a goal is defined, you can easily estimate how much investment is required and in what timeframe.

Based on Income - The 50-30-20 Rule

One of the effective ways to invest in a mutual fund SIP is the 50/30/20 rule. The rule allocates 50% of post-tax income to unavoidable monthly expenses, 30% to lifestyle expenses such as entertainment and 20% to savings or investments. Within the 20% portion of your income, you can aim to invest in mutual funds.

Let's take an example for SIP Maturity Calculation:-

If your monthly take-home salary is Rs 60,000, the allocation would look like this: 

Monthly expenses (50%): Rs 30,000 for rent, food and bills.

Lifestyle (30%): Rs 18,000 for travel and shopping.

Savings/SIP (20%): Rs 12,000 for emergency corpus and investments. You can set up an automatic SIP of Rs 5,000 for a disciplined, "savings-first" approach as a beginner. You can step-up your SIP once your salary increases.

SIP Amount Calculation Based on Your Monthly Income

Based on the 50-30-20 rule, this is how much of the SIP should be monthly contributed towards your mutual fund investments.

How to Choose the Right Mutual Fund for SIPs

While Monthly SIPs help you invest in mutual funds in a disciplined manner and create a large corpus with small investments. But if you have invested in a mutual fund scheme that has historically trailed its category, you are likely to get suboptimal returns even if you invest for a long-term through SIPs. Hence, choosing the right mutual fund is absolutely important to get best returns on your invested sum. Here’s how:

Choose the right category: There are various types of mutual funds available. Pick the one that best matches your requirements. If you are seeking exposure to blue-chip stocks without being overwhelmed by severe price fluctuations, invest in large cap mutual funds. If you are comfortable taking extra risk for higher returns, investing in mid- and small-cap funds.

Look at the fund’s historical performance: One mistake that mutual fund investors often make when choosing a right mutual fund scheme is to focus on recent returns when they should be focussing on the fund's historical performance. A consistent track record of positive returns over the long run like 5 or 10 years indicates the fund’s reliability. You should also consider the fund's risk profile and compare it with your own risk tolerance.

Fund's expense ratio: The best mutual funds tend to have low expense ratios, which allows investors to retain a larger portion of their returns. Funds with lower expenses also usually perform better in the long period as the cost of management is kept minimal. For those seeking a best SIP mutual fund to invest in should consider this ratio.

Investors planning to invest in mutual funds through SIP can pick from multiple SIP structures based on their wealth accumulation strategies, liquidity requirements and market conditions:

• Regular SIP allows you to invest a fixed amount in a mutual scheme at predefined intervals, which can be daily, weekly, monthly or yearly.
  
• Top-up SIPs are an option for those who want to increase the amount of their regular SIPs with an increase in their income.
  
• Flexible SIPs are you if are seeking the flexibility of changing the SIP amount anytime. Such type of SIPs are ideal for those having irregular cash flows.
  
• Trigger SIPs work on specific triggers such as on hitting certain levels in NAV or when index reaches certain levels, etc.
  
• Pause SIPs allows you to pause (not discontinue) your SIP for a specific period when you are cash strapped.
  
• Perpetual SIPs have no expiry date and thus, are best-suited for those investing for a very long period of time.

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