Total Investment: ₹6,00,000
Estimated Returns: ₹5,76,349
Total Value: ₹11,76,349
What is a SIP Calculator?
A SIP calculator is an online tool that helps investors estimate the returns they can expect from their SIP investments over a period of time. It’s particularly useful for planning investments in mutual funds.
How Does a SIP Calculator Work?
- Input Data:
- Monthly Investment Amount: The fixed amount of money you plan to invest every month.
- Investment Duration: The total period over which you plan to continue the SIP, usually in years.
- Expected Rate of Return: The annual expected return on investment, typically expressed as a percentage.
Calculation Process: The calculator uses the following formula to calculate the future value (FV) of your SIP investments:
FV=P×(1+r)n−1r×(1+r)FV=P×r(1+r)n−1×(1+r)
Where:
- P = Monthly SIP amount
- r = Expected monthly rate of return (annual return divided by 12)n
- n = Total number of installments (number of months)
This formula essentially calculates the compounded value of each installment of the SIP.
Output:
Total Investment: The total amount you would have invested over the period.
Estimated Returns: The profit earned over the investment period.
Total Value: The sum of your investment and the returns, representing the future value of your SIP.
Example:
Monthly SIP Amount (P): 5,000
Investment Duration: 10 years (120 months)
Expected Annual Return (r): 12%
Step-by-Step Calculation:
Convert the Annual Return to a Monthly Return:
r = 12%⁄12 = 1% or 0.01
Calculate the Total Number of Installments:
n = 10 × 12 = 120 months
Apply the SIP Future Value (FV) Formula:
FV = P × [(1 + r)n − 1] ⁄ r × (1 + r)
Substituting the Values:
FV = 5000 × [(1 + 0.01)120 − 1] ⁄ 0.01 × (1 + 0.01)
Calculate the Future Value (FV):
(1 + 0.01)120 is the compound growth factor over 120 months.
Subtract 1 from this factor to find the growth due to SIP.
Divide by 0.01 to adjust for the monthly rate.
Multiply by 5,000 to get the future value.
Output:
Total Investment:
5,000 per month for 120 months = 6,00,000
Estimated Returns: 11,76,349 – 6,00,000= 5,76,349
Total Value (Future Value): 11,76,349
Summary:
Total Investment: 6,00,000
Estimated Returns: 5,76,349
Total Value: 11,76,349
This means that after 10 years, with a monthly SIP of rupee 5,000 at an expected annual return of 12%, you would have accumulated approximately rupee 11,76,349. The profit over your original investment of rupee 6,00,000 would be rupee 5,76,349.