SIP Calculator

SIP is a method of investing in mutual funds where you contribute a fixed amount of funds at regular intervals, such as monthly. It's a way to invest in mutual funds without making a large, one-time investment.

What is the SIP Calculator?

An SIP (Systematic Investment Plan) calculator is a financial tool that helps investors predict the returns on their SIP investments. It allows investors to calculate their monthly investment amount, investment duration, and expected rate of return, enabling them to determine the future value of their investment.

This SIP Calculator particularly helps investors plan their investments and understand how their money can grow.

How can SIP Calculator Help You?

A SIP calculator is a simple tool that helps you plan your savings by showing how much money you can grow over time. Here's how it helps:

See Future Savings: You put in how much money you want to invest regularly (monthly), the period (3,5,7 years), and an expected growth rate (like 12,15,18 %). The calculator shows how much your money could become.

Plan Better: The SIP Calculator helps you decide how much to save each month to reach your goals, such as buying a car or a house.

Understand Growth: The Calculator shows how your small, regular savings can grow over time due to compounding growth in mutual funds.

Save Time: Instead of doing complex math, the calculator does it instantly for you.

Try Different Options: You can change the amount, time, or rate to see what works best for your budget.

The Power of Compounding in SIPs

Compounding is the process by which your investment earns returns, and those returns generate additional earnings over time. In a SIP, your regular contributions benefit from compounding as the returns are reinvested, leading to exponential growth. 

Example: Investing ₹5,000 monthly at 12% annual return for 10 years doesn’t just grow linearly; it multiplies as both your contributions and accumulated returns earn further returns. This makes SIPs a powerful tool for long-term wealth creation.

SIP Calculator Formula

An SIP Investment Calculator uses the following formula for getting the estimated returns:

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

Where,

• FV = Future Value of the Investment.
• P = Monthly Investment Value (Periodic Investment).
• r = Expected Rate of Return.
• n = Number of years.

How to Use the SIP Calculator?

The SIP Calculator is very simple to use. It is a three-step process. You can use it by following the steps mentioned below.

• Step 1: Enter your Monthly SIP amount
• Step 2: Enter your SIP tenure
• Step 3: Enter the expected Rate of Return

Hence, after entering the details, the SIP calculator will automatically show the invested value, estimated returns on the investment, and the total investment value immediately.

Let’s understand how to use the SIP calculator by using some real-time examples. 

SIP Calculation Example 1:

Abhi from Mumbai wants to invest in a mutual fund through a Systematic Investment Plan (SIP) to save for a down payment on his dream car in 7 years. He decides to use the SIP Calculator to estimate his future savings.

• Step 1: Enter Monthly SIP Amount: Abhi decides to invest ₹8,000 per month.
• Step 2: Enter SIP Tenure: He chooses a tenure of 7 years (84 months).
• Step 3: Enter Expected Rate of Return: Based on his research, he expects an annual return of 14% from an equity mutual fund.

Once he fills in the details automatically, the SIP calculator will give the results

Results From SIP Calculator:

• Invested Amount: ₹6,72,000
• Estimated Returns (Wealth Gained): ₹4,77,600
• Total Future Value: ₹11,49,600

The SIP Calculator immediately shows that by investing ₹8,000 monthly in mutual funds via SIP for 7 years at an expected return of 14%, Abhi could accumulate approximately ₹11.49 lakh. 

This helps him confirm that her investment plan aligns with his car savings goal. 

He can also adjust the SIP amount or tenure in the calculator to explore other scenarios, such as increasing his monthly investment to ₹10,000 or extending the tenure to 10 years for a larger corpus.

SIP Calculation Example 2:

Prachi from Bangalore is 50 years old and wants to save a corpus for her retirement via investing in a Mutual Fund in SIP. She was an aggressive investor who sought to generate high returns and invest in small-cap funds. 

Now, she wants to know how much corpus she can make for her retirement and uses the SIP Calculator to know the expected value.

• Step 1: Enter Monthly SIP Amount: Prachi decides to invest ₹15,000 per month.
• Step 2: Enter SIP Tenure: She chooses a tenure of 10 years (120 Months) till her retirement.
• Step 3: Enter Expected Rate of Return: Based on her research and her investing experience, she expects an annual return of 17%.

After giving the inputs automatically, the SIP calculator will give the results

Results From SIP Calculator:

• Invested Amount: ₹18,00,000
• Estimated Returns (Wealth Gained): 29,34,526.4
• Total Future Value: ₹47,34,526.46

The SIP Calculator instantly gives Prachi the output that by investing ₹15,000 monthly for 10 years until her retirement, at an expected return of 17%, she could accumulate approximately ₹47.43 lakh. 

It helps her that her investment of 18 Lakh over 10 years can ideally make a big retirement corpus.

Example 3: How much does a ₹1000 SIP become in 5 years?

Let's assume a college student, Sneha, aged 21, wants to invest ₹1000 in a SIP for 5 years and wants to know how much money she can make after 5 years. And uses the SIP calculator and assumes 15% of growth for his investment on a YOY basis.

• Step 1: Enter Monthly SIP Amount: Sneha puts ₹1,000, hence she wants to invest 1k per month.
• Step 2: Enter SIP Tenure: She chooses a tenure of 5 years (60 Months).
• Step 3: Enter Expected Rate of Return: Based on her knowledge, she expects an annual return of 15%.

After giving the inputs automatically, the SIP calculator will give the results

Results From SIP Calculator:

Invested Amount: ₹60,000
Estimated Returns: ₹29,681.69
Total Investment Value: ₹89,681.69

The SIP calculator immediately tells Sneha that her investment of 60,000 over 5 years has become 89,681.69, which is approximately a 50% return on her overall investment.

Example 4: How A ₹5000 SIP Will Grow in 10 years?

Abdul from Hyderabad, who runs a business, wants to invest ₹5000 per month in mutual funds via SIP for 10 years. He uses the SIP Calculator to estimate the amount of wealth he can accumulate after 10 years of investment, assuming a 16% annual return.

• Step 1: Enter Monthly SIP Amount: Abdul enters ₹5,000.
• Step 2: Enter SIP Tenure: He chooses a tenure of 10 years (120 Months).
• Step 3: Enter Expected Rate of Return: Based on her knowledge, she expects an annual return of 15%.

After entering the three inputs, the SIP calculator will automatically give the results

Results From SIP Calculator:

Invested Amount: ₹22,80,000
Estimated Returns: ₹64,73,254.18
Total Investment Value: ₹87,53,254.18

Abdul was immediately able to see that the investment of ₹6,00,000 had yielded a whopping return of ₹8,82,357.55. Now, he has a total investment value of 14.82 Lakh.

Example 5: Can I Invest ₹10,000 Per Month Via SIP?

Yes, you can invest 10,000 per month in SIP. Priya from Chennai was investing 10,000 per month in a mutual fund for her child's marriage. 

She was a moderate risk-taker and invested in hybrid and index funds, expecting a rate of return of 12% per annum. Now she uses the SIP calculator to check how her investments can grow over a 20-year period.

• Step 1: Enter Monthly SIP Amount: Priya Inputs ₹10,000.
• Step 2: Enter SIP Tenure: She chooses a tenure of 20 years (240 Months).
• Step 3: Enter Expected Rate of Return: She expects an annual return of 12%.

After entering the three inputs, the SIP calculator will automatically give the results

Results From SIP Calculator:

Invested Amount: ₹24,00,000
Estimated Returns: ₹75,91,479.19
Total Investment Value: ₹99,91,479.19

After using the SIP calculator, Priya understood that her investment of 24 Lakh would become 99.91 Lakh with an expected return of 75.91 Lakh over the period.

Advantages of Using the SIP Calculator

The SIP calculator offers several advantages for investors planning their mutual fund investments. It provides a clear picture of potential returns and helps in setting realistic financial goals. The tool is user-friendly, making it accessible even for those without extensive financial expertise.

• SIP Calculator eliminates the need for rough estimates and provides the estimated returns based on the inputs.
• Investors can use the SIP Calculator to explore various investment durations, amounts, and expected returns, and see how changes in these factors impact their potential corpus.
• SIP Calculator streamlines the process of assessing SIP returns, saving more time than manual calculation.
• The SIP calculator offers insights into potential returns, enabling investors to make more informed decisions and plan their finances more effectively.

Risks of SIP Investments

Generally, all investments carry different types of risks. While SIPs are effective, they also come with different risks such as,

• Market Risk: Returns depend on market performance, which can be volatile, especially for equity funds.
• Fund-Specific Risks: Not all funds perform equally. Poor fund selection may lead to lower returns.
• No Guaranteed Returns: The expected rate of return is an estimated return, not a guaranteed return.

Choosing the Right Mutual Fund for SIP

Selecting the right mutual fund to invest in is crucial for SIP success. Consider:

• Risk Profile: Large-cap funds for stability, small-cap funds for high returns with higher risk, hybrid funds for balanced returns and the Debt funds for Low returns with low risk.
• Historical Performance: Review the fund’s historical performance and its consistency over the past 5-7 years.
• Expense Ratio: A Low expense ratio is more favourable.
• Fund Manager Track Record: Experienced managers may deliver better results than the new fund manager.
• Goal Alignment: Match the fund to your goal, such as equity funds for long-term investments, or debt or hybrid funds for short-term goals.

Tax Implications of SIP Investments

Returns made from the sale of equity mutual funds fall under capital gains, hence STCG & LTCG will be applicable.

Long-Term Capital Gains: Units sold after one year of purchase will be taxed at 12.5% on returns made above ₹1.25 lakh in a financial year.
Short-term capital Gains: Returns made on the sale of mutual funds within one year from the date of purchase will be taxed at 20%.
Debt Funds Taxation:

• If purchased before 1 April 2023 and held for up to 24 months, it is considered as STCG and taxed at the slab rate; otherwise, it is held for more than 24 months and considered as LTCG, taxed at a rate of 12.5% without indexation.
• If purchased on or after 1 April 2023, consider always STCG under section 50AA and taxed at the slab rate.

Dividend Tax: Income from dividends by mutual funds is taxable under the slab rates.

How to Invest in Mutual Funds Via SIP?

Investing in mutual funds is a very simple process. Follow the steps below to invest in mutual funds via SIP.

• Step 1: Open Cleartax Invest on your browser.
• Step 2: Log in / Create Your Account with cleartax
• Step 3: Select the Mutual Fund that you are interested in investing in.
• Step 4: Select the SIP option on the fund page
• Step 5: Enter the SIP amount
• Step 6: Click on Invest Now
• Step 7: Complete the payment with a registered Bank
• Step 8: Set up the Auto-Pay

Once you successfully complete Auto-pay, your SIP process is completed every month. Your SIP will be triggered automatically, so please ensure that you maintain sufficient funds in your account.