SIP (Systematic Investment Plan) Calculator
Calculate the future value of your monthly mutual fund investments.
What is a SIP Calculator?
A SIP (Systematic Investment Plan) calculator is a powerful tool designed to help investors estimate the returns on their mutual fund investments made through the SIP route. Unlike a lump-sum investment, a SIP allows you to invest a fixed amount regularly (monthly, quarterly, or weekly), which helps in averaging the cost of purchase and harnessing the power of compounding.
How Does SIP Compounding Work?
The core philosophy of a SIP is "Time in the market is better than timing the market." When you invest consistently, you buy more units when prices are low and fewer units when prices are high. Over time, this discipline leads to a lower average cost per unit. The calculator uses the formula for the future value of an annuity due to determine how your wealth grows.
The Formula Used:
FV = P × [({(1 + i)^n} – 1) / i] × (1 + i)
Where:
– FV = Future Value
– P = Monthly investment amount
– i = Monthly interest rate (Annual rate / 12 / 100)
– n = Number of installments (Years × 12)
Example: Investing $500 Monthly
If you invest $500 every month for 10 years and expect a 12% annual return:
- Total Amount Invested: $60,000
- Estimated Returns: $56,169
- Total Wealth Created: $116,169
This example demonstrates how consistent saving can nearly double your money over a decade through the power of compounding and market growth.
Benefits of Using a SIP
1. Financial Discipline: It automates your savings, ensuring you invest before you spend.
2. Rupee Cost Averaging: You don't need to worry about market volatility as you buy at various price points.
3. Power of Compounding: Small amounts invested early grow significantly larger than large amounts invested late.