A SIP calculator demands specific investment details from a user. These include investment amount, expected rate of return, total investment period, etc. Then, this tool employs such data in a mathematical formula to produce the required results.
The SIP calculator formula can be represented as follows:
A = [P x {(1+i)n – 1} x (1+i)] / i
Where,
A = Final amount you will get upon maturity,
P = Periodic investment amount,
i = Periodic interest rate, and
n = Total number of payments made
By using the SIP return formula, the online tool will display results for total investment, final expected return, and net income.
On some websites, you may need to enter your expected annual return rate and preferred investment frequency. For example, your expected rate of return per annum is 12%, and you want to invest Rs.1000 monthly for a period of 60 months.
In that case, ‘i’ will be calculated as 12%/12, that is, 1%.
Substituting the other values in the SIP formula, the total expected return amounts to Rs.82,487 against a total investment of Rs.60,000. Therefore, probable wealth gain is Rs.22,487.
Note that this SIP return calculator does not consider factors like expense ratio and exit load. These factors play an important role in determining your net income. Therefore, your actual returns might differ from the calculator’s result.
Nevertheless, having some idea is better than having no idea at all, isn’t it?
You can use the mentioned formula to calculate SIP returns manually as well. However, using an online tool can make the process a lot simpler and accurate.