How a SIP Calculator Works

Monthly amount: how much you plan to invest each month.

Time period: how many years you will keep investing.

Expected return: the yearly rate you assume the investment will grow at. This is your guess, not a fact.

Some calculators also let you add a yearly increase in the SIP amount, called a step-up.

Each monthly instalment is treated as if it grows at the assumed rate from the month it is invested until the end. The first instalment grows for the whole period, the last one for just a month.

The calculator adds up the grown value of every instalment. This is the future value of a series of regular payments, a standard formula in finance. Our page on compounding explains why early instalments grow so much more.

Small changes in the return you enter cause big changes in the final number, especially over long periods. This is the power of compounding, but it also means an optimistic assumption can give a very misleading picture.

Try a few different returns, including a cautious one. If your plan works only with an optimistic number, it is a fragile plan.

The calculator assumes the same return every month. Real markets rise and fall. Some years are strongly positive, some are negative. The order of good and bad years also affects your actual result.

So the calculator output is a smooth line, while real investing is a bumpy road. Our page on risk and volatility explains the bumps.

Most calculators show two numbers: the total you invested and the estimated final value. The difference is the estimated gain. Over long periods, the gain can be larger than the amount invested, which is what makes long-term SIPs attractive.

But remember, that gain depends entirely on the return you assumed.

Simple calculators do not subtract expense ratios or tax on gains. If you enter a return figure, think of it as the return after costs. Tax will apply when you redeem, depending on the rules at the time.

Our pages on expense ratio and mutual fund taxation explain these.

A final value in twenty years will not buy what the same amount buys today. To see the real value, you need to adjust for rising prices.

Our page on inflation and your savings explains why this matters for long goals.

If your income rises, you can increase your SIP each year. A step-up calculator shows how much difference a yearly increase can make. Often, the effect is large.

Try our step-up SIP calculator with your own assumptions, and read our page on step-up SIP.

Instead of asking what a SIP will grow to, you can ask how much you need to invest to reach a target. A goal calculator does this, using the same formula in reverse.

Our goal SIP calculator lets you try this, and our page on setting financial goals explains how to set targets.

A calculator estimates future value. To measure what your SIP has actually earned, use XIRR, which accounts for the date and amount of every instalment.

Our page on XIRR explains it, and our XIRR calculator lets you check your own SIP.

We do not suggest a specific return figure. A sensible approach is to try a cautious number, a moderate one and an optimistic one, and plan your goal around the cautious result.

Never rely on a number someone promises you. No regulated mutual fund can promise you a particular result.

• Entering an unrealistically high return.
• Forgetting inflation when judging the final value.
• Assuming you will never stop or pause the SIP.
• Treating the result as a promise.
• Comparing calculator results with actual returns without using XIRR.

Besides the SIP calculator, our SWP calculator shows how withdrawals might last, and our retirement calculator helps estimate retirement needs. All use your own assumptions.

See all our tools on the calculators page.

The best use of a SIP calculator is to answer practical questions. How much more would I have if I started five years earlier? What if I raise my SIP every year? What if returns are lower than I hope? These comparisons help you act sensibly.

Suppose you plan a monthly SIP for fifteen years. You try three growth rates: a cautious one, a moderate one and a hopeful one. The calculator shows three very different final values. The gap between the cautious and hopeful results is often large.

If your goal is reached even in the cautious case, your plan is sturdy. If only the hopeful case works, you may need to invest more, start earlier, or extend the time. That is the real value of the calculator.

Apps and fund websites may show past returns, CAGR, absolute return or XIRR for your actual SIP. These are measures of what happened, not projections. A calculator is about what might happen. Mixing the two causes confusion. Our page on how returns are calculated explains each measure.

• A SIP calculator uses a compounding formula.
• It assumes the same growth rate every month.
• Real results will differ.
• Use cautious assumptions and compare scenarios.

Try our free SIP calculator. If you want help using it to plan your goals, get in touch.