What is a Systematic Investment Plan (SIP) Calculator?
A Systematic Investment Plan (SIP) is a disciplined investment strategy where you invest a fixed amount regularly (usually monthly) into a mutual fund. It enables wealth creation over time by taking advantage of the power of compounding and market fluctuations.
SIP Calculation Formula
To calculate the future value of your SIP investment with compound interest applied monthly, the formula used is:
A = P × [(1 + r)n - 1] ÷ r × (1 + r)
Where:
- A = Maturity Amount (Total Corpus)
- P = Monthly investment amount
- r = Monthly interest rate (annual rate ÷ 12)
- n = Total number of months (years × 12)
How the SIP Calculator Works
The SIP Calculator computes the future value of your investments based on the monthly contribution, the expected annual return rate, and the investment duration. It assumes monthly compounding to give you a realistic view of your potential earnings.
Benefits of Using This SIP Calculator
- Goal Planning: Helps you plan long-term goals like buying a house, child's education, or retirement.
- Realistic Projections: Gives you an idea of how much you’ll accumulate over time based on consistent investments.
- Discipline: Encourages a regular savings habit by illustrating the power of consistency and compounding.
Factors That Affect SIP Returns
- Monthly Investment Amount: The more you invest each month, the larger your final corpus will be.
- Investment Duration: A longer time frame increases the power of compounding.
- Expected Return Rate: Higher returns can significantly boost the maturity value.
- Market Performance: SIPs are subject to market risks; returns may vary over time.
Start of Month vs End of Month SIP
The timing of your monthly SIP investment can slightly affect your total returns due to compounding differences:
- End of Month SIP: This is the standard assumption. Your investment is made at the end of each month and starts earning interest from the next month onward.
- Start of Month SIP: If you invest at the beginning of the month, each contribution earns interest for an extra month compared to end-of-month investments. Over time, this leads to slightly higher returns.
📊 Summary Comparison
| Scenario | Maturity Value (₹) | Extra Earned |
|---|---|---|
| End of Month SIP | ₹2,29,041 | — |
| Start of Month SIP | ₹2,32,339 | +₹3,298 |
Over long durations, starting your SIP at the beginning of each month can lead to higher returns due to the additional month of compounding for each investment.
Explore more: SIP Calculator, Calculate your returns on National Pension Scheme (NPS)