SIP Calculator
A SIP calculator is a simple tool that allows you to estimate your future value on your investments.
What is SIP?
Systematic Investment Plan (SIP) refers to the practice of investing equal amounts, spaced out over regular intervals, regardless of price.
How does the calculator work?
You need to fill in the required information,which is the monthly investment amount, expected annual rate of return and time period. When you change these numbers, the calculator will change its total amount. This amount would be your Future Value.
For instance, if you assume an expected annual rate of return of 15% and wish to invest for 15 years, here are two indicative scenarios –
To build a future corpus of ₹ 1 crore, you will have to invest ₹15,000 per month. However, if you invest a minimum ₹ 5000, you will get around ₹ 33.82 lakhs after 15 years.
How can you use the calculator?
When you decide to invest via the SIP route, you will either have a financial goal in mind or a certain amount that you wish to invest.
In the first scenario, an SIP return calculator tells you how much you need to invest monthly and for how long, so that you achieve your goal. If you invest for a longer duration, your monthly contribution would be lower, and vice versa.
Inversely, if you have a certain amount of money in hand every month that you want to invest through SIP, the calculator will tell you how much you can earn if you invest it for a given number of years. In this case, you can find out the duration that you invest for, to earn your desired amount, if any.
How does the calculator work?
Let’s assume you are a new investor looking to invest via the SIP route. You want to invest₹ 5,000 monthly for the next 12 months, with an expected return of 12%.
The sip calculator uses the following formula to generate results:
FV = P × ({[1 + i]n – 1} / i) × (1 + i).
where,
- FV = future value at the end of the term
- P = fixed investment through sip
- I = compounded interest rate
- N = investment duration
Now, your monthly return would be 12%/12 = 0.01
Hence, the estimated money you are entitled to earn at the end of 12 months is:
FV = 5,000 ({(1 + 0.01)12 – 1} / 0.01) x (1 + 0.01)
FV= ₹ 60,000 approximately in 12 months.
Final words
Investing/ making an investment decision requires a great deal of time and patience.