Simplest way to calculate future returns on SIP investments
SIP stands for Systematic Investment Plan. It is a popular investment method in which an individual invests a
fixed amount of money at regular intervals (usually monthly) into mutual funds or other investment instruments.
SIP allows investors to invest in a disciplined manner, regardless of market fluctuations, by averaging out the
purchase price over time.
An SIP calculator is a tool or software that helps calculate the future value or accumulated amount of
investments made through a systematic investment plan. It takes into account factors such as the monthly
investment amount, investment duration, expected rate of return, and compounding frequency to provide an
estimate of the potential growth of the investment.
SIP:
SIP = [ p × [ ( (1 + i) ^ n ) - 1 ] / i ] × (1 + i)
p = Invested Amount
i = Monthly Return Rate (return rate per month)
n = Time period in months
To calculate i :
i = [ ( 1 + Return Rate / 100 ) ^ (1/12) ] - 1
Total Invested Amount = p × n
Estimated return = SIP - Total Invested Amount
Suppose you invest ₹ 25000 per month through an SIP for a duration of 10 years (120 months), and you expect an average annual return of 12 %.
To calculate the SIP:
| Invested Amount | = 25,000 |
| Return Rate | = 12 % |
| Time Period | = 10 Years (120 months) |
| p | = 25,000 |
| n | = 120 months |
| i | = ? |
| i | = [ ( 1 + Return Rate / 100 ) ^ (1/12) ] - 1 |
| = [ ( 1 + 12 / 100 ) ^ (1/12) ] - 1 | |
| = [ ( 1 + 0.12 ) ^ (0.08333333333) ] - 1 | |
| = [ ( 1.12 ) ^ (0.08333333333) ] - 1 | |
| = [ 1.00948879293 ] - 1 | |
| = 0.00948879293 | |
| i | = 0.01 |
| SIP | = [ p × [ ( (1 + i) ^ n ) - 1 ] / i ] × (1 + i) |
| = [ 25000 × [ ( (1 + 0.01) ^ 120 ) - 1 ] / 0.01 ] × (1 + 0.01) | |
| = [ 25000 × [ ( (1.01) ^ 120 ) - 1 ] / 0.01 ] × 1.01 | |
| = [ 25000 × [ ( 3.30038689457 ) - 1 ] / 0.01 ] × 1.01 | |
| = [ 25000 × 2.30038689457 / 0.01 ] × 1.01 | |
| = [ 57509.6723643 / 0.01 ] × 1.01 | |
| = 5750967.23643 × 1.01 | |
| = 5808476.9088 | |
| = 5808477 |
Therefore, the future value or accumulated amount of the SIP investment, with a monthly investment of ₹ 25,000 an investment duration of 10 years, and an expected annual return of 12%, would be approximately ₹ 58,08,477.
To calculate the Total Invested Amount:
| Total Invested Amount | = p × n |
| = 25000 × 120 | |
| = 3000000 |
To calculate the Estimated return:
| Estimated return | = SIP - Total Invested Amount |
| = 5808477 - 3000000 | |
| = 2808477 |
Therefore, Estimated Return is ₹ 28,08,477 and Total Estimated Return (SIP) at the end of a 10-year is ₹ 58,08,477.
