How SIP returns are calculated?

23 May 2024

In the journey towards investing wisely, making informed decisions and strategic planning are two of the important things that can help investors generate wealth over the period. SIPs, being the most common strategy, offer a structured and disciplined approach towards investing.

This allows investors to commit to regular investments and harness the power of compounding. However, it is quite crucial to calculate the right amount to optimise financial growth and overall returns. Needless to say, by calculating SIP returns, one can easily decide the right amount.

In this article, we will discuss the approach how to calculate sip returns using a sip calculator and its advantages.

The Advantages of Using a SIP Calculator

A systematic investment Plan calculator is a significant tool that helps an investor tailor systematic investment plans. It takes different parameters from the user and returns the total expected value of the corpus, empowering investors to make data-driven decisions. A few of the key advantages it offers are the following.

1. Tailor-made investment plan

The key advantage of using a SIP calculator to calculate projected returns is to customise the investment plans and strategies based on financial goals. Inputting parameters like frequency, investment duration, and SIP amount can return expected returns.

2. Projections

SIP calculators are designed using advanced computer algorithms that help to generate projections. Based on different parameters, the calculator returns a realistic return on investment, letting investors track the performance of investments and set realistic financial goals.

3. Improves Decision making

By having projections and visual representations of investment growth, investors can make decisions wisely. They can completely rely on the sip calculator formula to design their investment strategy and make data-driven decisions about their financial goals. This kind of accuracy can help investors surpass the complexities of financial planning.

4. Comparison of various investment opportunities

By calculating SIP returns, one can compare the different investment opportunities that are available. Investors can use different parameters like sip return percentage for different investment scenarios to make informed decisions. Additionally, it allows investors to evaluate the merits and demerits of any investment strategy and select the best suitable option available.

Steps to calculate SIP returns

An investor can either use a SIP return Calculator or a manual approach for calculating SIP returns. Both of the approaches are quite straightforward and discussed below.

Use the SIP Calculator Formula:

Step 1: Get all the required parameters, such as the expected rate of return in SIP, SIP amount, and investment duration.

Step 2: input these details into the SIP calculator formula given below to get the project returns to calculate manually or use a SIP calculator available online.

The formula to calculate SIP returns (M) is Where:
P: Monthly SIP Amount

R = Monthly interest rate (annual interest rate divided by 12)

N = Total number of SIP payments(total months)

Put in all the values for P, r and n to determine the value of M (Maturity Amount)

Step 3: Review and analyse the SIP returns results. Check if the projected returns align with your expectations and whether they can help to achieve financial success.

Visual Representation of the Formula

Let's take an example. Suppose Rakesh starts a SIP where he invests INR 5000 at the beginning of every month in a mutual fund with an expected rate of return of 10 per cent. He plans to continue this SIP for 20 years.

Using the SIP return Formula:

Amount Invested (P) = 5000
Periodic rate of interest ( r ) = 10 per cent per annum or 0.10
Total number of payments (n) = 20 years * 12 months/year = 240

Now, put this value in the formula.
After calculating the value of this expression, the expected return on investment over 20 years will be nearly INR 36 lacs 2 Thousand.

Wrapping Up: SIP Return Calculation Benefits

Investors can easily calculate their projected return on investment accurately using the SIP calculator Formula or SIP calculator tool. Further, based on this, they can easily design their investment plans based on financial objects and make informed decisions by comparing different investment opportunities effectively. This empowers investors to achieve their financial objectives by optimising their investment strategies effectively and efficiently.

Frequently Asked Questions

1. What factors influence SIP returns?

There are different factors, such as market conditions, investment duration, rate of return, frequency of contribution, asset allocation, economic factors, and fund performance, that influence the overall return of SIP investment.

2. What is the formula for calculating SIP returns?

The formula to calculate SIP return is M = (P * ((1+r)^n -1)/r) * (1+ r) Where M is the maturity amount, P is the monthly SIP amount, r is the monthly rate of interest and n is the total number of SIP payments.

3. What is the SIP return percentage?

SIP return percentage is the value of the total percentage gain on the investment made through SIPs. it represents the increase in the value of investment for a specified period.

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Disclaimers

‘Calculators' are for illustration purpose only intended to provide conceptual clarity for purpose of education for an investor and to demonstrate the power of compounding. Under the SEBI or MF Regulations, no standard guideline in place regarding uses of assumptions for calculation of returns.

SIP investments does not guarantee of any profit/loss in an upward/declining market. Kotak Mahindra Asset Management Company Limited/Kotak Mutual Fund is not guaranteeing or promising any returns/future performances.

Investors may consult their Financial Advisors and/or Tax advisors before making any investment decision.

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY