SIP Returns Calculator
Calculate the future value of your Systematic Investment Plan
What is a SIP Calculator?
A SIP (Systematic Investment Plan) calculator is a smart financial tool designed to help you estimate the potential returns on investments made through the SIP route. Unlike a lump sum investment, where you deposit a large amount at once, a SIP allows you to invest small amounts at regular intervals (usually monthly). This calculator uses the power of compounding to show how your small monthly contributions can grow into a significant corpus over time.
How Does SIP Compounding Work?
The formula for SIP calculation involves the future value of an annuity. When you invest via SIP, your money buys units of a fund at different price points. Over time, the returns earned on your principal investment also start earning returns. This "interest on interest" effect is known as compounding. The longer your investment horizon, the more pronounced the wealth-building effect becomes.
The formula used is: M = P × ({[1 + i]^n – 1} / i) × (1 + i)
- M: Amount you receive upon maturity
- P: Amount you invest at regular intervals
- i: Periodic rate of interest (Annual rate / 12 / 100)
- n: Total number of payments (Years × 12)
Example of SIP Growth
Let's look at a realistic scenario: If you invest $500 per month for 15 years at an expected annual return of 12%:
- Total Invested: $90,000
- Wealth Gained: $162,283
- Total Value: $252,283
This shows that your earnings ($162,283) are actually higher than your total investment ($90,000), illustrating the power of staying invested for the long term.
Benefits of Using a SIP Calculator
Using a SIP calculator helps in financial planning by providing clarity on how much you need to save to reach your goals, whether it's buying a home, funding education, or retirement. It allows you to experiment with different monthly amounts and timeframes to find an investment strategy that fits your budget.