How to Calculate SIP Returns
A Systematic Investment Plan (SIP) allows you to invest a fixed amount regularly in mutual funds. The returns are calculated using the future value of an annuity formula.
SIP Future Value Formula
FV = P × [(1+r)^n - 1] / r × (1+r)
Where:
- FV = Future Value of SIP investment
- P = Monthly SIP amount
- r = Monthly rate of return (annual rate / 12)
- n = Total number of monthly installments
Step-by-Step:
- 1
Set your monthly investment
Decide how much you'll invest each month (P).
- 2
Estimate the return rate
Convert annual expected return to monthly: r = annual rate / 12 / 100.
- 3
Calculate total months
Multiply years by 12 to get n.
- 4
Apply the formula
Compute the future value using the SIP formula.
Worked Examples:
10-year SIP at 12%
Monthly SIP: ₹5,000Annual Return: 12%Duration: 10 years
Result: ₹11,61,695
Monthly rate = 1%. n = 120 months. FV = 5000 × [(1.01)^120 - 1] / 0.01 × 1.01