Systematic Investment Calculator
Projected Future Value
Understanding Systematic Investment Plans (SIP)
A Systematic Investment Plan (SIP) is a popular investment strategy, especially in mutual funds, where investors invest a fixed amount of money at regular intervals (typically monthly) into a chosen scheme. This disciplined approach helps in averaging the cost of investment over time and instills financial discipline.
The SIP calculator helps you estimate the potential future value of your systematic investments based on a consistent monthly contribution, an expected rate of return, and the duration of your investment.
How the Calculation Works
The future value of a SIP is calculated using the future value of an ordinary annuity formula, compounded periodically. The formula accounts for the regular contributions and the assumed growth rate over time.
The formula used is:
FV = P * [((1 + r)^n – 1) / r] * (1 + r)
Where:
- FV = Future Value of the investment
- P = Periodic Investment Amount (your monthly investment)
- r = Periodic Interest Rate (annual rate of return divided by the number of compounding periods in a year, usually 12 for monthly investments)
- n = Total Number of Investment Periods (investment period in years multiplied by the number of compounding periods per year, usually 12)
In this calculator:
- P is your 'Monthly Investment Amount'.
- The 'Expected Annual Rate of Return (%)' is converted to a monthly rate 'r' by dividing by 100 and then by 12. So,
r = (annualRate / 100) / 12. - The 'Investment Period (Years)' is converted to the total number of months 'n' by multiplying by 12. So,
n = investmentPeriod * 12.
Benefits of SIP
- Rupee Cost Averaging: Invest a fixed amount at regular intervals, buying more units when prices are low and fewer units when prices are high, averaging your purchase cost.
- Disciplined Investing: Encourages regular savings and investment habits.
- Power of Compounding: Your returns start earning returns, accelerating wealth creation over the long term.
- Flexibility: Most SIPs allow you to increase or decrease your investment amount as your financial situation changes.
- Risk Mitigation: Investing small amounts regularly diversifies your investment across different market cycles, reducing the impact of short-term volatility.
Use this calculator to plan your financial goals and understand the potential growth of your investments through a disciplined SIP approach.