Understanding Systematic Investment Plans (SIP)
A Systematic Investment Plan (SIP) is one of the most disciplined and powerful ways to generate long-term wealth. By investing a fixed amount regularly into mutual funds or index funds, you benefit from rupee-cost averaging and the magic of compounding. Our step-up SIP calculator helps you visualize this exponential growth.
How is SIP Return Calculated?
The future value of a SIP is calculated using the compound interest formula for a regular series of payments (Annuity Due):
- FV: Future Value of the investment.
- P: Regular Monthly Investment amount.
- i: Monthly interest rate (Annual rate / 12 / 100).
- n: Total number of payments in months (Years × 12).
Example Calculation
Imagine you invest ₹10,000 every month for 10 years (120 months) at an expected annual return of 12%.
- P = 10,000
- i = 12% / 12 / 100 = 0.01
- n = 120
Your total invested amount is ₹12,00,000. Because of compounding, your estimated total wealth grows to approximately ₹23,23,391, giving you over ₹11 Lakhs in pure returns.
Frequently Asked Questions
What is a Step-Up SIP?
A Step-Up SIP automatically increases your monthly investment by a specified percentage each year. This mimics annual salary appraisals and drastically increases your final corpus by taking advantage of higher compounding on larger amounts later in the cycle.