How to Calculate SIP Returns in Mutual Funds?
Systematic Investment Plan (SIP) is one of the popular and disciplined ways of investing in mutual funds. SIP allows you to invest a fixed amount, which can be a small portion of your regular income at regular intervals for a chosen period in a mutual fund scheme. Usually, you can choose monthly, quarterly, or weekly frequency to invest in mutual funds.
As you invest a fixed amount on a regular basis, there is no need to time the market. Every month, you would invest at different NAV and accumulate units accordingly. This means you would accumulate more units when the price is low and fewer units when the price is high. Over the period, your investment cost is averaged. SIPs are great investment options for long-term investors in the equity asset class as they offer multiple benefits. To make a goal-based investment in SIP, you can first estimate the SIP returns and invest the required amount accordingly. There are simple online tools like systematic investment plan calculator or SIP calculator online, which can help you plan for your goals before you decide to invest in SIP.
How to calculate mutual fund SIP returns?
Mutual fund SIP returns are calculated using the compound interest formula.
F = P X [{(1+i) ^n – 1}/ i] X (1+i)
In this formula:
- F – Future fund value or the value of your SIP investment on maturity
- P – Initial investment amount or the investment amount in the SIP mutual fund at the chosen frequency
- n – Number of SIP installments
- i – The expected rate of return (p.a)
Instead of manual calculation, you can use the SIP calculator which is also designed on the same formula. You need to input the details like monthly investment amount, expected rate of return, and time period to calculate SIP returns using the SIP calculator online. It is a simple and easy tool that helps you calculate SIP return within a second. You can adjust the amount of investment to reach the final amount required for your goal. For example, let’s say you are planning to invest INR 10,000 every month for the next three years into a mutual fund SIP. Based on your research and the fund’s historic performance, you expect it to deliver the returns at the rate of 12% p.a. In that case you need to input the following data in the SIP calculator online:
Monthly investment – INR 10,000
Expected rate of return (p.a.) – 12%
Time period – 3 years
The systematic investment plan calculator online instantly gives you the future fund value of your investment based on the input given by you. Your total investment of INR 3,60,000 in a mutual fund SIP would approximately value INR 4,35,076 at the end of 3 years if the fund delivers a 12% p.a. return.
However, these calculations are based on the expected rate of return. The estimated SIP returns will change when you increase or decrease the expected rate of return. For example, in the above case, if we consider the expected rate of return as 11% p.a., the future value of your investment would be INR 4,28,120 and if the expected rate of return is 13% p.a., the value of your investment would be INR 4,42,172. The actual returns may vary depending on the fund performance taking into consideration other factors like exit load and expense ratio etc.
Calculating SIP returns using a systematic investment plan calculator helps you plan your investment based on your goal, time horizon, and the amount that you can invest. SIP calculator online, a simple tool available online can save your time from the manual calculation of SIP returns. Plan your SIP investments based on your financial goals and needs.
