A SIP (Systematic Investment Plan) Calculator is a tool designed to help estimate the future value of investments made through a SIP, commonly used in mutual funds. With SIPs, investors regularly invest a fixed amount, usually on a monthly basis.
The SIP Calculator helps users see how their investments can grow over time by considering key factors like:
1. Investment Amount: The fixed amount invested regularly (e.g., ₹1000 per month).
2. Duration: The total number of years the SIP will continue.
3. Expected Return Rate: The estimated annual rate of return.
Using these inputs, the calculator provides an estimate of the total value at the end of the investment period, including both contributions and potential returns. It simplifies financial planning and offers insight into future gains from consistent investments.
A SIP plan calculator works on the following formula –
M = P × ({[1 + i]^n – 1} / i) × (1 + i).
In the above formula –
Take for example you want to invest Rs. 1,000 per month for 12 months at a periodic rate of interest of 12%.
then the monthly rate of return will be 12%/12 = 1/100=0.01
Hence, M = 1,000X ({[1 +0.01 ]^{12} – 1} / 0.01) x (1 + 0.01)
which gives Rs 12,809 Rs approximately in a year.
The rate of interest on a SIP will differ as per market conditions. It may increase or decrease, which will change the estimated returns.