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SIP Calculator

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Investments made when during month?

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What is a SIP?

A SIP (Systematic Investment Plan) is an investment vehicle that offers the long-term benefits of dollar-cost, pound-cost or rupee-cost averaging without the massive initial outlay. The principle behind a SIP is that you make equal monthly payments into a fund, trading account, or retirement account, so your investment grows over time as a result of both monthly payments and the power of compound interest on your returns.

Most SIP plans include payouts into the same security every month, but that doesn't mean you can't diversify them. You can render your investments immune to market-related hazards by choosing a range of mutual funds.

Calculating your SIP projections

You can't control something you don't measure, so your SIP calculations are a crucial part of your investment. To calculate your expected returns, you'll need to know your monthly investment amount, projected annual returns, and investment period.

First, you'll need to record the investment amounts you've made thus far, along with the dates of those investments. From there, you'll need to incorporate the total market value of your owned units. This data should be available on your SIP statement and is regarded as cash inflow rather than outflow.

What is the formula for calculating a SIP?

SIP calculations can be carried out using a version of the future value formula and compound interest formula.

FV = P × ({[1 + r]n – 1} / r) × (1 + r)

Where:

  • FV = future value
  • P = periodic amount invested
  • r = periodic interest rate (as decimal)
  • n = the number of payments made.

Types of SIP

SIPs can be moulded to your budget and investment style. There are seven investment options:

  1. Regular SIPs require a fixed payment at regular intervals. This needn't entail monthly investments. Regular SIPs can be paid quarterly and even half-yearly.
  2. Top-up SIPs let you raise your investment amounts intermittently. Step up products incorporate compounding into your investment.
  3. Flexible SIPs let you raise or reduce your investment amount at any time. This gives you more than just savings in low-income months. It also allows you to respond to market booms.
  4. Perpetual SIPs lack a definite tenure, so your contributions will only end when you ask your fund house to stop your investments.
  5. Trigger SIPs give experienced investors the freedom to respond to market ebbs and flows. You can redeem or change your investments after your selected trigger event. That event could be a positive market event, increase in capital, or a sudden depreciation.
  6. A SIP with Insurance lets you cover potential losses through a gradually-increasing insurance policy. This option is generally limited to equity mutual funds.
  7. Multi SIPs let you use one investment vehicle to invest in several fund house schemes. This cuts back on your red tape while diversifying your investment.

Understanding the benefits

SIPs are perfect for over-burdened investors. They ask very little of you, so you can sit back and watch them grow. Once you've made your initial choices, you don't need to give them further attention. SIPs are paid in small sums, so they're perfect for cash-poor investors. They rely on a dollar-cost averaging strategy, which divides your investment amount across regular asset purchases. This helps you to overcome market volatility while offering you a hands-free investment experience.

SIPs make wealth building as easy as saving. They offer a goal-driven financial planning tool you can nip and tuck to your unique investment style. They lock you into regular investments, so you can render those self-discipline tricks you've been learning to the past.

When it comes to investing, it's worth consulting a professional financial advisor before making any major decisions. To learn more about SIPs, I recommend reading this article from Investopedia.

Calculator created by Alastair Hazell