When you invest in a mutual fund through the Systematic Investment Plan (SIP) route, you invest a fixed amount regularly (weekly, monthly, etc.). This approach averages the market’s highs and lows (called rupee cost averaging) and makes investing easier without worrying about timing or market volatility.

Such a disciplined approach is popular in India as it builds wealth systematically over time. But, how do you know what your regular monthly contributions will become, say after 15 or 20 years?

For this purpose, several investors use a SIP calculator. It gives a realistic projection of how much money you can accumulate after the end of your investment tenure. Want to know more? Let’s see what a SIP calculator is, its key features, and how it can help you.

What is a SIP Calculator

A SIP calculator is a simple online tool. Most mutual fund investors use it to determine the future value (FV) of their SIP investments. For making calculations, the calculator uses the following formula:

Where,

  • FV is the future value
  • P is the monthly investment
  • r is the return rate
  • t is the tenure

The estimated wealth is calculated considering the ‘compounding effect’. However, keep in mind that the actual returns may vary due to market changes. Hence, the results are just an indication and not a guarantee.

What details do you enter in a SIP calculator

To use a SIP calculator, you need to enter certain specific details, such as:

  • Investment amount: This is the fixed amount you plan to invest every month through SIP. For example, say Rs. 5,000 monthly.
  • Expected return (%): You enter the percentage of annual return you are expecting to earn. Ideally, you should pick a return considering the past performance of the mutual fund.
  • Investment period: This is the duration you plan to invest for, such as 10 years or 15 years.

Using these inputs, the calculator estimates the future value of your SIP. The results are often divided into two parts:

  • How much you have invested?

and

  • How much you have earned as returns?

How does a SIP calculator help you

The most common use of a SIP calculator is to obtain a rough projection of your future corpus. Such an understanding motivates you to invest for the long term. Additionally, a SIP calculator helps you in the following ways:

Helps you set realistic investment goals

The calculator assists in setting achievable financial goals by showing how much you need to invest monthly to accumulate a specific amount. For example,

  • Say you want Rs. 10 lakhs in 12 years.
  • You have shortlisted a mutual fund scheme available on the platform of a leading NBFC.
  • Based on the past performance, you are expecting a return of 12% p.a.
  • Now, the SIP calculator instantly determines the monthly SIP required.

Through this knowledge, you can plan for significant milestones like retirement or buying a house.

Allows you to evaluate different investment plans

Most SIP calculators today are highly flexible. Using them, you can experiment with various:

  • SIP amounts
  • Tenures
  • Expected returns

They let you see how each factor influences your final corpus. For example, how increasing your monthly SIP or choosing a fund with higher returns may significantly boost your corpus.

Additionally, some SIP calculators offer EMI calculation features. You can instantly determine the monthly amount you must repay for items bought from online marketplaces or offline stores.

Example of using a SIP calculator

Rohan, a 30-year-old IT professional, wants to start an SIP of Rs. 6,500 per month for the next 15 years. He wants to fund his daughter’s higher education. To determine how much he can accumulate, he used a SIP calculator for clarity.

  • Inputs made by Rohan in the SIP calculator:
    • Monthly SIP: Rs. 6,500
    • Expected annual return: 10%
    • Investment period: 15 years
  • Results:
    • The SIP calculator showed that Rohan can achieve a target corpus of Rs. 27,16,508.
    • It also showed that Rohan will earn a total return of Rs. 15,46,508.

Conclusion

A SIP calculator is an easy-to-use online tool for mutual fund investors. It helps you estimate the future corpus by inputting details like monthly contribution, expected return rate, and investment duration. While the results are projections and not guarantees, they still provide valuable insights and allow you to set realistic targets.

Additionally, several SIP calculators give you the flexibility to explore different SIP amounts or durations. The knowledge gained makes it easier to achieve long-term financial success.