How is SIP Return Calculated?
A Systematic Investment Plan (SIP) allows you to invest a small, fixed amount in mutual funds at regular intervals. The returns on SIP are calculated using the future value of an annuity formula, modified for the beginning of the period since SIP installments are usually made at the start of the month.
The mathematical formula is:
FV = P × [((1 + r)^n - 1) / r] × (1 + r)
Where:
FV = Future Value (the amount you will get at the end)
P = Monthly investment amount
r = Monthly rate of return (Annual Return / 12 / 100)
n = Number of monthly installments (Years × 12)
What is an Inflation Adjusted Return?
Most SIP calculators will tell you that ₹10,000 invested monthly at 12% for 20 years will grow to nearly ₹1 Crore. However, due to inflation, ₹1 Crore twenty years from now will not have the same purchasing power as ₹1 Crore today.
Our SIP calculator computes the inflation-adjusted value using this formula:
Real Value = Future Value / (1 + inflation)^yearsThis helps you understand exactly what your future wealth will be worth in today's money, allowing you to set realistic financial goals.
Frequently Asked Questions
How much should I invest in a SIP every month?
This depends entirely on your financial goals. You can start a SIP with as little as ₹500 per month. If your goal is retirement planning, try to invest 10% to 20% of your monthly income. You can use our Goal Calculator to find the exact SIP amount needed for a specific target.
Can I increase my SIP amount later?
Yes! This is known as a Step-Up SIP. As your income grows, you can instruct your mutual fund company to increase your monthly SIP by a fixed percentage or amount every year. You can calculate returns for this strategy using our Step Up SIP Calculator.