SIP Calculator - Systematic Investment Plan

By Purnima Singh, PhD
Last updated: Jul 14, 2021

Omni's SIP calculator (systematic investment plan calculator) allows you to estimate the returns on your mutual fund SIP investments. You can also use our tool to know how much you should invest monthly to achieve your investment goal.

Dreaming about retiring early to follow your passion, or planning about your kid's educational expenses? Worry not! Our SIP calculator can help you plan your investments so that you can fulfill your dreams and promises. Read on to know what SIP investment is and how to use this calculator to plan your finances.

What is a SIP (systematic investment plan)?

A systematic investment plan or SIP is a method of investment offered by mutual fund companies. Investors can use this facility to invest a fixed amount periodically in mutual fund schemes of their choice. Apart from SIP, you can also make a one-time investment in mutual funds by investing a lump sum.

A SIP investment is somewhat similar to recurring deposits (RD) in the sense that in both of them, we deposit a fixed amount regularly over a long time period. However, while RDs offer a fixed return as decided by your bank, SIPs offer a varying return as they invest money in mutual funds, which are linked to the stock market. SIPs have the potential to earn higher returns as compared to recurring deposits.

How to calculate SIP return?

The formula for calculating SIP return is:

Maturity amount = P * [(1 + r)n - 1] / r * (1 + r),

where:

  • P — Amount you invest monthly, i.e., your monthly SIP amount;
  • nTotal number of payments you have made during the whole investment period t; and
  • rExpected rate of interest per month.

For example, suppose you want to invest Rs. 2,000 per month for 20 years. The expected rate of return is 12% per annum (each year).

As you are making monthly payments (12 per year), the number of payments made in 20 years is:

  • n = 12 * t = 12 * 20 = 240

Your total investment during these 20 years is:

  • 240 * 2000 = Rs. 480,000

We can calculate the monthly return as:

  • r = 12 / (12 * 100) = 0.01

And determine the maturity amount as:

Maturity amount = 2000 * [(1 + 0.01)240 - 1] / 0.01 * (1 + 0.01) = Rs. 1,998,296

This means that if you stay invested for 20 years, you can multiply your investment by 4.2x:

Maturity amount / Total investment = Rs. 1,998,296 / Rs. 480,000 = 4.2.

The rate of return on mutual funds depends on market conditions. It may vary, and so do your estimated returns. You can check out the websites of various mutual fund houses to know the annualized rate of return of their various schemes.

How to use the SIP calculator?

Let us see how you can use our systematic investment plan calculator to plan your mutual fund investment.

To calculate SIP return: We will choose the same example as in the previous section and show you how easily and quickly you can calculate your SIP return using our online SIP calculator:

  1. Type your monthly SIP amount, i.e., Rs. 2,000, in the first row.
  2. Enter the investment period, say 20 years, in the second row.
  3. Input the expected rate of return per annum, i.e., 12%, in the third row.
  4. The SIP calculator will display your total investment (Rs. 480,000), maturity amount (Rs. 1,998,296), and the factor by which your investment has multiplied (4.2).

If you know your investment goal: To decide how much amount you should invest per month so that you have enough money to fulfill your dream, follow these instructions:

  1. Enter the amount you need to fulfill your dream, say Rs. 500,000, in the section maturity amount.
  2. Type the number of years after which you want the money, for example, 10 years, in the section investment period.
  3. Input the expected rate of return per annum, say 10%.
  4. You will get your monthly SIP amount, i.e., Rs. 2,421.

Note: This calculator does not take into account exit load and expense ratio.

What are the benefits of SIP investment?

Some benefits of SIP are:

  • Power of compounding — If you start your SIPs early in life and stay invested for a longer period, you benefit from compounding. Over the long term, your small investments grow into a massive nest egg.

  • Inculcating financial discipline — In SIP investment, you are forced to pay a fixed amount at regular intervals. You can start with sums as small as Rs. 500 and then increase your investment as your income increases. All this helps you to inculcate a sense of financial discipline.

  • A better handle on market fluctuations — When you invest through SIP, you stagger your investments in mutual funds over an extended period. This means you have a better handle on market fluctuations. As you are investing a fixed amount, you buy more fund units when the market is down. If the market is surging, you buy lesser units. Over a longer period, the purchase cost averages out and turns out to be on the lower side. This is known as rupee cost averaging. This benefit is not available when you invest a lump sum.

  • Better inflation-adjusted return — Equity mutual funds generally offer a better return than saving schemes like fixed deposits. The current inflation rate for India is about 6-7%. Most banks offer fixed deposits at an interest rate of 5-6%, which does not beat inflation. Then you also have to pay income tax on this interest depending upon your income-tax bracket. Investing in mutual funds via the SIP route offers higher returns as well as tax benefits.

  • Tax benefits of SIP — If you hold your purchased units for more than one year, the income generated from redeeming them becomes a long-term capital gain. In India, long-term capital gain of up to Rs. 1 lakh per year is tax-free. If your income from redeeming your units is more than that, you will have to pay tax at the rate of 10%. Thus, investing in mutual funds offers tax benefits compared to FDs (fixed deposits) or RDs, where the tax can be as high as 30%.

FAQ

How does a systematic investment plan (SIP) work?

In a systematic investment plan, you purchase fund units by investing a fixed amount at regular intervals in the mutual fund schemes of your choice. When the stock market is performing well, you buy fewer units, and when the market is down, you buy more units. As a result, you do not have to time the market. Over a long period, your investment gets compounded and multiplies.

Is SIP tax free?

No, not all SIPs are tax-free. When you invest in equity-linked savings schemes (ELSS), you get a tax deduction of up to Rs. 1,50,000 under section 80c of income tax. The return from SIP investment is considered long-term capital gain if the holding period exceeds 12 months. Long-term capital gains up to Rs. 1 lakh per year are tax-exempt.

What are the risk factors in SIP?

The main risk factors in SIP investments are:

  1. Since mutual fund investments are subject to market risks, the value of your SIP investment may go down if the market is not performing well.
  2. Selling your fund units and getting your money back may take some time. Some investments also have a lock-in period. As a result, you may run into liquidity risk if you need your money very quickly.

What is the minimum investment in SIP?

INR 500. You can start your investment via SIP with a minimum amount of Rs 500. The minimum amount may vary between different asset management companies.

What is NAV in SIP?

NAV stands for Net Asset Value. It is the market value of a single mutual fund unit. NAV is calculated at the end of every market day. So, every time you invest in mutual funds, you purchase units at the current NAV.

What is the long-term capital gain tax rate for 2021?

10%. The long-term capital gains (LTCG) are taxed at a flat rate of 10% if the income from investments (equity shares, mutual funds, government securities, etc.) exceeds Rs 1 lakh.

Purnima Singh, PhD
Monthly SIP amount (P)
$
Investment period (t)
yrs
Expected rate of return (r)
%
Return
Total investment
$
Maturity amount
$
Investment multiplication factor
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