What is a SIP Calculator?
A Systematic Investment Plan (SIP) Calculator is a powerful online tool designed to help you estimate the returns on your mutual fund investments. Unlike a regular savings account where interest is simple, SIPs rely on the power of compounding. This calculator allows you to visualize how small, regular contributions can grow into a substantial corpus over time. Whether you are planning for retirement, a child's education, or buying a home, this tool gives you a clear financial roadmap. It eliminates the guesswork, helping you decide exactly how much you need to save every month to reach your financial goals.
How Does it Calculate?
The calculator works on the principle of compound interest, but with a twist. In a standard compound interest scenario, you invest a large sum once. In a SIP, you invest a fixed sum every single month. The calculator takes your monthly input and treats each installment as a fresh investment that earns interest for the remaining duration. As your money grows, the interest earned also starts earning interest. This "interest on interest" effect is what accelerates wealth creation. The calculator aggregates these monthly compounded values to give you a final maturity amount that includes both your principal investment and the wealth gained.
The Mathematical Formula
The formula used for calculating the Future Value (FV) of a SIP is derived from the geometric progression series. It assumes that the investment is made at the beginning of each period.
Where:
P = Monthly SIP Amount
i = Periodic Interest Rate (Annual Rate / 12 / 100)
n = Total Number of Payments (Years × 12)
For example, if you invest $5,000 monthly at an annual return of 12% for 10 years, 'i' would be 0.01 (1% per month) and 'n' would be 120 months. The formula performs the complex iteration instantly to show you the final result.