Understanding SIP Calculator & Interest Rate Calculations

Ensure precise financial planning by verifying the current interest rate on the SIP calculator. This information is vital for making informed decisions and maximising returns on your investments.

SIP is an abbreviation for Systematic Investment Plan, which is a way to invest in mutual funds. SIPs allow investors to set aside a fixed amount of money regularly so that they can gradually build up their investments over time. You Can Know about the Current Interest Rate on SIP.

Large-cap equities are expected to return 11-16% on average, this varies to an Interest Rate on the SIP calculator is 14-17% for mid-cap equities. One can expect a return of 7-10 % p.a. on a debt-based mutual fund over the long term, however.

SIPs are ideal for people who want to invest regularly but don’t want to worry about where or how much they should invest each month. With SIPs, you decide how much you want to invest each month and the amount is automatically invested in your mutual fund account at regular intervals.

What is a SIP Calculator?

A SIP Calculator, or Systematic Investment Plan Calculator, is a financial tool that helps investors estimate the potential returns on their investments made through SIPs. It allows you to calculate the future value of your SIP investments based on various parameters such as the investment amount, duration, and expected rate of return.

How to Calculate Interest Rate on SIP?

Investing in SIPs is a disciplined and efficient method for accumulating wealth. Market volatility is automatically reduced due to interval investments. SIP mutual fund returns provide insight into a fund’s performance in the market.

Despite this, SIPs have fixed interest rates since they are backed by market-linked instruments. The monthly SIP investments can be calculated using a SIP Calculator.

Investors can calculate the return on investments in SIP schemes in several ways to evaluate their performance. We have discussed some ways in which return rates can be calculated for SIPs in this article.

Absolute Return or Point-to-Point Return

Absolute Return refers to the investment strategy of targeting a specific return, regardless of market conditions. In this case, the investor can be assured that they will receive some minimum amount of return on their investment, regardless of what happens in the market.

Absolute Return = { Initial NAV /(Final NAV – Initial NAV)}*100

Here is an Example. 

Suppose your investment has an initial NAV of ₹70. The amount grew to ₹100. Therefore, your investment would yield the following absolute return:

Initial NAV	₹70
Final NAV	₹100
Absolute Return [Initial NAV / (Final NAV- Initial NAV)]*100	[(100-70)/70]*100 = 42.8%

If you want to calculate the return by investing money, let’s examine how to do it. Consider an investment of ₹1,00,000. After a year, this amount has grown to ₹1,55,000. The absolute return here is calculated as follows: 

Initial NAV	₹1,00,000
Final NAV	₹1,55,000
Interest Rate on SIP [Initial NAV / (Final NAV- Initial NAV)]*100	[(155000-100000)/100000]*100 = 55%

Here are some things to keep in mind about Absolute Returns

• The ease of calculating returns with this method is one of its greatest benefits. Present value and original investment amount are all you need to know. Short-term investments can be measured using this tool. 
• Its disadvantages are, however, more significant. Investment tenure is not taken into account. As a result, it will show investment growth (or decline), but not its pace. It also makes it difficult to compare two mutual funds. An investment return of 55% might seem appealing, but it is impossible to tell whether the gain was realized in six months, one year, three years, or five years.

Compounded Annual Growth Rate (CAGR)

By taking into account investment tenure, the CAGR method eliminates the limitations of the Absolute Method of SIP calculator returns. The calculated returns of mutual funds are the average annual growth of the investment. The value of the investment is also assumed to compound over time. 

This method uses the following formula:

CAGR = [(1/n) ^ (Final investment value / Initial investment value)] –1

Above, ‘n’ represents the duration of the investment.

For ease of understanding, let’s take an example.

Let’s say you choose to invest ₹1,00,000 in a mutual fund. Within five years, this amount had grown to ₹1,50,000. Following is the formula for calculating CAGR:

Initial NAV	₹1,00,000
Final NAV	₹1,50,000
CAGR  [(1/n) ^ (Final investment value / Initial investment value)] – 1	[(150000/100000)^(⅕)] -1 = 0.08 = 8%

CAGR: What you need to know

• As a result, 8% is the annual growth rate required to reach the final investment amount. Mutual fund returns are calculated using the CAGR method, which shows the performance of mutual funds over time. 
• It is possible to calculate returns for different durations using this method. Outgrowth is averaged and volatility is overlooked. There is no indication that the mutual fund grows by 8% every year. A period of negative returns may have been followed by a period of high returns that covered the negative gains- CAGR does not indicate either. 
• Furthermore, CAGR is a wise investment option for lump sums. SIP returns are not usually measured this way. You will need to calculate the CAGR for each installment separately if you use this method. Due to the changing duration of time in the formula, the formula changes every month. Suppose you invest ₹10,000 every month through a SIP calculator for two years. The first installment will have returns calculated for 24 months. In the following years, we will have 23, 22, and so on. It is very difficult to calculate because of this.

Calculate SIP returns using XIRR – SIP interest rates are flexible, so outgoing and incoming cash flows may vary due to irregular intervals. An XIRR calculation is performed for irregular cash flow schedules, as well as for annualized growth rates.  

Regular investments can be made in a SIP for as long as the investor wishes. In the long run, long-term investments are beneficial because of the maturity amount at the end of the investment. The date of SIP is predetermined based on the scheme’s net asset value, and even the amount is predetermined. Units are distributed to investors under the SIP scheme. In this way, units are accumulated by investors until the date they exit the SIP. A maturity amount is calculated by multiplying the net asset value (NAV) by the total number of units.

Calculating the total return on a scheme can be done using XIRR. Calculating XIRR requires the following:

• The amount of the SIP
• Investment dates for SIPs
• Redemption date
• Amount due at maturity.

Conclusion

Interest Rate on SIP Guide – Because SIP investments are made on a monthly basis, there is a very limited negative impact of market volatility compared with lump-sum investments. SIP funds also provide flexibility for investors since they can be created, updated, or canceled at any time. The best SIP scheme depending on your personal preferences can be chosen by comparing the changing SIP return rates.

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• Setup of your own business (Proprietorship, Private Limited, LLP registration)
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FAQs:-

1. What if I SIP ₹30,000 per month for 5 years?

If you invest ₹30,000/month in SIP for 5 years, the accumulated amount will depend on the SIP returns. Use a SIP calculator to estimate potential returns based on the chosen investment plan.

2. How much is a ₹50,000 monthly SIP for 5 years?

Calculating the total value of a ₹50,000/month SIP for 5 years involves considering the rate of return. Utilize a SIP calculator to project the future value based on your expected returns.

3. What happens if I invest ₹15,000 a month in SIP for 15 years?

Investing ₹15,000/month in SIP for 15 years has the potential to accumulate a significant corpus. Use a SIP calculator to understand the future value based on your expected rate of return and investment duration.

Helpful Links:

• SIP Investment
• SIP vs FD