Systematic Investment Plan, commonly referred to as SIP, is a preferred mode of
investment offered by mutual fund companies that allows you to invest money regularly.
The
power of compounding
enables to grow your funds over time to a sizeable corpus.
SIP contributions can be made weekly, monthly, quarterly or in lump sum. The rate
of return applied to your contributions determines the final amount that you receive on
maturity or when you sell your SIP. A SIP return
calculator can help you determine this amount depending on the rate of interest and the
time you stay invested. However, you must remember that the actual money that you
receive can vary from the result on the calculator
due to several factors that cause market volatility.
How does a SIP calculator work?
You will require the following information in order to use the SIP calculator. Returns from your investments are calculated on the basis of the following:
The SIP calculator will generate a result using the above information and the following formula:
Amount invested × ({[1 + Periodic rate of interest] Total number payments – 1} / Periodic rate of interest) × (1 + Periodic rate of interest).
How are SIP returns calculated?
Calculating returns on a SIP investment involves understanding how your monthly contributions grow over time with the power of compounding.
The formula1 used is:
Where:
- FV is the future value of the investment.
- P is the monthly investment amount.
- r is the periodic rate of interest (annual interest rate divided by 12).
- n is the total number of payments (investment tenure in months).
Simple steps to use ICICI Prudential Life’s SIP Returns Calculator
Using ICICI Prudential Life’s SIP calculator online is simple and convenient.
Here’s how you can calculate your SIP returns in just a few steps:
-
Enter Your Monthly SIP Amount
Provide the amount you plan to invest every month
-
Specify the Investment Duration
Choose the tenure of your investment, either in months or years
-
Add the Expected Annual Return Rate
Enter the percentage return you expect from your SIP investment
-
Click ‘Calculate’
The SIP return calculator processes your details and shows the future value of your investments instantly
Use the SIP Calculator to plan your investments confidently and achieve your financial goals.
Here’s an example to understand this better:
How does a SIP calculator work?
Let’s take the example of Ms. S. She is a private sector employee who has decided to invest ₹ 5000 every month in a SIP for a minimum of 2 years. The expected rate of return for her investment is 12%. So, as per the formula, the calculator will give out the following results:
Total amount invested in the SIP
₹ 1,20,000
(Invested 5,000 p.m. X 12 X 2 yrs)
(Invested 5,000 p.m. X 12 X 2 yrs)
Total amount at maturity of the SIP
₹ 1,36,216
However, as stated above, it is essential to keep in mind that the amount that Ms. S receives can be more or less than the figure on the calculator depending on the market conditions in these 2 years.
What are the advantages of using a SIP calculator?
The SIP return calculator can be instrumental in many ways. Here are some benefits of using this calculator:
You can plan your SIP investments:
The calculator provides estimations of how much you can save and earn with the power of compounding .
You can balance your other investments:
Most experts suggest keeping a well-diversified portfolio that includes a combination of stocks, mutual funds, real estate and more. Once you know your estimated earnings from a mutual fund SIP, you can allocate money to other forms of savings and investments.
You can set a clear time frame:
The calculator helps you ascertain your returns as per the time horizon that you select. So, if you do not meet your goal, you can consider increasing the total time for staying invested.
You can avoid errors:
Manual calculations can lead to mistakes and discrepancies. An online SIP calculator eliminates the chances of all blunders, giving you a realistic outlook. It also saves a lot of time as these calculators are fairly quick. All you need to do is enter the information, and your result is shown within seconds.
You can pick the right product:
There are several funds available in the market. The rate of return for each could differ. A SIP calculator can help you choose one that is ideal for your goals.
What are the different Types SIP Investment Plans available in India
SIP investment plans in India cater to diverse financial goals and risk appetites. Understanding the types of SIPs available can help you make an informed decision. SIP investment plans can generally be categorised into two types: (a) the method of investment and (b) the destination of the funds. Below are some of the most common types2.
Regular or Fixed SIPs
Top-up (Step-up) SIPs
Flexible SIPs
Multiple SIPs
Perpetual SIPs
Trigger SIPs
Equity Based SIP
Debt Based SIP
Hybrid SIP
Gold SIP
ELSS
Regular or Fixed SIPs :
This type of SIP allows investments of a fixed amount at predetermined or regular intervals—monthly, quarterly, or bi-annually.
Top-up SIPs :
This type of SIP is meant to allow increasing the investment amount periodically, either by a fixed amount or a percentage. The idea is that as income grows over time, the investor can enhance their wealth growing potential by increasing SIP amount accordingly.
Flexible SIPs :
This type of SIP allows for adjustments in instalment amounts based on market fluctuations or financial circumstances. Certain plans even permit skipping instalments or modifying contributions, making it ideal for those with variable incomes.
Multiple SIPs :
The basic idea of this type of SIP is to provide for portfolio diversification. This type of SIP enables investment in different mutual funds through a single SIP setup. The frequency of investments depends on the individual schemes chosen, and skipping instalments generally depends on each fund’s policy.
Perpetual SIPs :
As the name suggests, this type of SIP typically has no end date and does not require periodic renewal. However, recent regulatory changes have capped contributions at a maximum of 30 years and require an end date to be specified. This SIP is ideal for long-term investors looking to build wealth over an extended period without the need for renewal or extension.
Trigger SIPs :
Market movements can create opportunities for strategic investors, making this type of SIP an ideal choice. Investments with this type of SIP, occur only when predefined market conditions—such as an index drop or NAV change—are met, rather than at fixed intervals. Investment is thus automated, enabling investors to capitalise on market fluctuations, allowing SIPs to be initiated, stopped, increased, reduced, or liquidated based on preset triggers.
Equity Based SIP :
Equity-based SIPs invest primarily in stocks, offering higher growth potential. They are ideal for long-term wealth creation, especially for those with a high-risk tolerance. Using a SIP calculator, you can estimate returns based on historical market performance and plan your investments accordingly.
Debt Based SIP :
Debt SIPs focus on fixed-income securities like bonds and government instruments. These plans are suited for investors seeking steady and predictable returns. You can use a sip return calculator to see how such investments grow over time with minimal risk.
Hybrid SIP :
Hybrid SIPs3 combine equity and debt instruments, balancing risk and returns. They are perfect for moderate-risk investors. Calculating potential returns with a SIP calculator online can help you understand how a hybrid SIP fits into your portfolio.
Gold SIP :
Gold SIPs allow you to invest systematically in gold, offering a hedge against inflation and market volatility4. Check potential returns with a SIP calculator online to see how gold can contribute to your financial goals.
ELSS :
ELSS SIPs invest in equity markets while offering tax* benefits under Section 80C of the Income Tax Act, 1961. These plans come with a lock-in period but promise long-term wealth creation. Use a SIP return calculator to understand how ELSS investments can grow over time.
Why should you buy a term insurance plan along with a SIP?
Buying term insurance is a must for chief earning members of a family as it protects your family against unfavorable financial situations in your absence. Term insurance acts as a substitute for income. It can be used as a way to pay off loans and other debts and allows your loved ones to fulfil their dreams and desires for the future.
Many companies are now offering term insurance along with a SIP. However, the
life cover for these plans is not more than ₹ 50 lakhs.
The ideal life
cover for a term plan, as suggested by financial experts, is at least 15 times
the amount of your annual income. So, for instance, if your annual income is ₹
10,00,000,
you should pick a life cover of at least ₹ 1,50,00,000.
In this regard, the term insurance amount offered by mutual fund companies may not be adequate for all individuals. Hence, it is advisable to purchase a plan outside of your SIP. Moreover, since a SIP could be a short-term investment and term insurance is a long-term agreement, mixing the two could be a problematic thing to do.
Having said that, the term insurance cover provided by SIPs does not cost anything. So, it could be a good idea to get it along with your plan if you do not have a term insurance policy at the moment. But you should not rely on this for the long run and invest in a wholesome policy from a recognized insurer as soon as possible.
Frequently Asked Questions
1. How accurate are Online SIP calculator results?
2. Can I change my SIP investment amount and tenure?
3. What is the average return on SIP?
4. What is the difference between SIP & Lump sum investment?
5. How long should you stay invested in a SIP?
“Tax benefits/Tax-free returns are subject to conditions under Sections 80C, 10(10D), 115BAC and other provisions of the Income Tax Act, 1961. Goods and Services Tax and Cesses, if any will be charged extra as per applicable rates. Tax laws are subject to amendments from time to time.
Please consult your tax advisor for more details.
¹ SIP Calculator – https://groww.in/calculators/sip-calculator
² Types of SIP Investment – https://www.bajajfinserv.in/investments/types-of-sip
³ Hybrid Mutual Funds – https://groww.in/mutual-funds/hybrid-funds
⁴ Guide to Invest in Gold Through SIP – https://www.digigold.com/...
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