function calculateSIP() {
// Clear errors
document.getElementById('errAmount').style.display = 'none';
document.getElementById('errRate').style.display = 'none';
document.getElementById('errYears').style.display = 'none';
// Get Inputs
var amountStr = document.getElementById('sipAmount').value;
var rateStr = document.getElementById('sipRate').value;
var yearsStr = document.getElementById('sipYears').value;
// Validation Flags
var isValid = true;
if (amountStr === " || isNaN(amountStr) || parseFloat(amountStr) <= 0) {
document.getElementById('errAmount').style.display = 'block';
isValid = false;
}
if (rateStr === '' || isNaN(rateStr) || parseFloat(rateStr) < 0) {
document.getElementById('errRate').style.display = 'block';
isValid = false;
}
if (yearsStr === '' || isNaN(yearsStr) || parseFloat(yearsStr) <= 0) {
document.getElementById('errYears').style.display = 'block';
isValid = false;
}
if (!isValid) return;
// Parse Values
var P = parseFloat(amountStr); // Monthly Investment
var i = parseFloat(rateStr); // Annual Rate
var n = parseFloat(yearsStr); // Years
var r = i / 12 / 100; // Monthly Rate
var months = n * 12; // Total Months
var totalValue = 0;
var investedAmount = P * months;
// Calculation Logic (Future Value of Annuity Due)
if (i === 0) {
totalValue = investedAmount;
} else {
// FV = P * [ (1+r)^n – 1 ] / r * (1+r)
// (1+r) at end implies payment made at start of period (standard for SIP)
totalValue = P * ((Math.pow(1 + r, months) – 1) / r) * (1 + r);
}
var wealthGain = totalValue – investedAmount;
// Display Results
// Formatting numbers with commas
function formatMoney(num) {
return num.toFixed(2).replace(/\d(?=(\d{3})+\.)/g, '$&,');
}
document.getElementById('resInvested').innerHTML = formatMoney(investedAmount);
document.getElementById('resGain').innerHTML = formatMoney(wealthGain);
document.getElementById('resTotal').innerHTML = formatMoney(totalValue);
document.getElementById('resultsBox').style.display = 'block';
}
How to Calculate Rate of Return on SIP
A Systematic Investment Plan (SIP) allows investors to invest small amounts periodically (usually monthly) into mutual funds. Unlike a lump-sum investment, SIPs benefit from the power of compounding and rupee cost averaging. Understanding how to calculate the rate of return on a SIP is crucial for financial planning and setting realistic goals.
The Mathematics Behind SIP Returns
While many assume SIP returns are calculated using simple interest, the actual calculation involves the concept of the Future Value of an Annuity. Since investments are made at regular intervals, each installment earns interest for a different duration.
The standard formula used to calculate the maturity value of a SIP is:
FV = P × ({[1 + r]^n – 1} / r) × (1 + r)
Where:
FV = Future Value (Maturity Amount)
P = Monthly Investment Amount
r = Monthly Rate of Return (Annual Rate / 12 / 100)
n = Total number of months (Years × 12)
Why Use a SIP Calculator?
Calculating SIP returns manually can be complex because of the compounding nature of monthly contributions. For example, in a 1-year SIP, the first installment is invested for 12 months, the second for 11 months, and so on. This calculator automates this geometric progression sum to provide an instant estimate of your future wealth.
Example Calculation
Let's look at a realistic scenario to understand the potential growth:
Monthly Investment: 5,000
Annual Return Rate: 12%
Duration: 10 Years
Step-by-Step Breakdown:
Total Invested: 5,000 × 120 months = 600,000
Monthly Rate (r): 12% / 12 / 100 = 0.01
Compounding Factor: The formula sums the compound interest for every individual payment.
Result: The maturity value would be approximately 1,161,695.
In this example, the wealth gained (interest earned) is 561,695, nearly doubling the invested capital due to the power of compounding over a decade.
Factors Affecting Your SIP Rate of Return
Several variables influence the final corpus of your investment:
Duration: The longer you stay invested, the more pronounced the effect of compounding becomes. The "magic" of compounding is most visible in the later years of the investment.
Market Volatility: Mutual fund returns are market-linked. While calculators use a fixed percentage for estimation, real-world returns fluctuate based on market performance.
Expense Ratio: The fee charged by the fund house to manage the fund. A lower expense ratio can lead to higher net returns over the long term.
XIRR vs. CAGAR in SIPs
When analyzing SIP performance, you will often hear about XIRR (Extended Internal Rate of Return) rather than CAGR (Compound Annual Growth Rate). CAGR is ideal for lump-sum investments where there is only one inflow and one outflow. However, since SIPs involve multiple cash inflows at different times, XIRR is the correct metric to determine the annualized return on the portfolio.