SIP Calculator

An SIP Calculator is an online tool that estimates the returns on your investments. By entering details like investment amount, investment duration and expected rate of return, you can see how your money may grow over time in future. This not only helps you plan your financial goals better but also compare different scenarios and assess whether your SIP fits your budget.

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

Starting SIP early 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.

Let’s take an example:-

Suppose you have started investing Rs 5,000 in SIP at the age of 22. On the other hand, your friend Mohit has started investing Rs 5,000 in 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.

• You can compare different scenarios by adjusting the rate of returns, monthly contributions and tenure to identify the best-suited plan.
• Helps you align monthly contributions with future financial goals.
• You can quickly calculate your expected returns on your SIPs and save time.
• Gives you an idea of how early SIP investments grow to generate wealth through compounding.

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.

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

• Monthly Investment - 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.

The 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.

• Free online tool to make quick calculations
• Easily adjust SIP, tenure and ROI to compare different scenarios
• Compare estimated returns to make informed decisions
• Detailed breakdown of the total value of investment & estimated returns
• Plan and track your financial journey

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

A good starting point for an 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—

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 Calculator Formula: 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.

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 net returns.

In this, the actual market performance is not included. SIP 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 calculated using Excel's = XIRR(values, dates), considering that the first SIP was invested for 12 months, the second investment for 11, and so on.

• Exit load, expense ratio, brokerage or platform fees, and transaction charges can reduce SIP returns.
• A longer tenure maximises SIP returns due to the power of compounding.
• Prolonged bear markets can reduce SIP returns.
• High inflation and long term capital gain taxation can reduce net profits.
• Pausing or stopping SIPs can affect long term gains.