SIP Calculator
Systematic Investment Plans
Different countries have different phrases for this kind of calculation. In some cases these are called Strategic Investment Plans. In others you may see Systematic Investment Plans. Other institutions may have their own phrases for the kind of investment that is about regular savings being made over a longer time period. Whatever the precise phrasing, this is a calculator that will help you work out interest on savings plans that operate over time and that involve what is called ‘cost-averaging’ where you usually make regular monthly payments into the plan.
Benefits
Benefit | Explanation |
---|---|
Lower Volatility | A main benefit of this approach is that you are at less risk of volatility in the market savaging a lump sum investment if the market suddenly falls sharply. Over time, the fact that you buy regularly means you are buying units or saving in all market conditions and this builds in a degree of security. |
Regular Compounding | If you are also getting regular compounding you are also ensuring that whatever money is in the plan is always gaining some degree of interest. |
Simplicity | They are also useful if you want your investments to be relatively simple, as the plan is set up and simply takes care of itself depending on what funding interval you choose. |
Discipline | They also encourage saving, as they are goal-oriented and seek a Future Value to aim for. |
Calculating your SIP
To calculate, you will need the following information.
# | Requirement |
---|---|
1 | monthly investment amount |
2 | how long you’re investing for |
3 | projected annual returns |
Your formula looks complicated, but it is quite simple to operate.
FV = P * (\cfrac{[1 + r]^n – 1}{r}) * (1 + r)
FV = future ~value
P = periodic ~amount ~invested, \\~for ~example, ~per month
r = periodic ~interest ~rate \\(as ~a ~decimal)
n = number ~of ~payments ~made
Use the SIP Calculator to play around with different outcomes by plugging in different numbers to see how your Strategic or Systematic Plan could work for you.
Types of SIP
When you seek financial advice, or think through what kind of SIP best suits you, be armed with the following ideas.
Regular Payment Plans, where you make fixed payments at monthly (usually) intervals.
Top-Up Plans, where you can add lump or top-up sums intermittently, as and when you have funds
Flexible Plans, where you can adjust your contributions month by month in line with what you can afford. These can be useful for freelancers where money is variable month by month.
Perpetual Plans, where you have no fixed term but just carry on funding the plan until you close it.
Whatever type of plan you choose, it is worth doing so after using the SIP Calculator to see what differences are made to the Future Value of any plan through the approach you might take to your saving.