SIP Calculator – Systematic Investment Plan Calculator

Prospective investors can think that SIPs and mutual funds are the same. However, SIPs are merely a method of investing in mutual funds, the other method being a lump sum. A SIP calculator is a tool that helps you determine the returns you can avail when parking your funds in such investment tools. Systematic Investment Plan or SIP is a process of investing a fixed sum of money in mutual funds at regular intervals. SIPs usually allow you to invest weekly, quarterly, or monthly. 

What is SIP Calculator?

SIP calculator is an online tool that calculates the return on your mutual fund investment through SIP, based on an estimated rate of return and the future value of your investment after a certain number of years.
The manual computation can be slightly labor-intensive since SIPs typically involve a monthly payment. Since the holding period for each monthly contribution would be different at any given point in time, the returns for each of these payments will differ as well.

How does SIP Calculator work?

A SIP plan calculator works by the values entered by the users.
You must enter the amount of investment, frequency of investment, duration of investment, and the expected returns. The SIP return calculator is designed based on the compound interest formula. The compounded interest powers the mutual fund returns. ClearTax SIP Calculator shows the comparison of the returns offered by mutual funds with fixed deposits.
You can understand the workings of a SIP calculator with this formula.
FV = P [ (1+i)^n-1 ] * (1+i)/iFV = Future value or the amount you get at maturity.
P = Amount you invest through SIP
i = Compounded rate of return
n = Investment duration in months
r = Expected rate of return
Take an example where you invest Rs 2,000 per month for a tenure of 24 months.
You expect a 12% annual rate of return (r).
You have i = r/100/12 or 0.01.
FV = 2000 * [(1+0.01) ^24 - 1] * (1+0.01)/0.01
You get Rs 54,486 at maturity.