How the SIP Calculator Can Help Investors Achieve Financial Goals

Systematic Investment Plans (SIPs) are among the most sought-after ways to invest in mutual funds today. This is because SIP offers many benefits like rupee cost averaging, compounding, lighter on the wallet, convenience (investors can opt for daily SIPs, weekly, monthly, quarterly, etc.) and inculcates the good habit of making regular investments to achieve the envisioned financial goals.

Thus, SIPs are a better way to invest in mutual funds than lumpsum amounts, particularly when investors have vital goals such as a child's higher education, their wedding expenses, and retirement needs to address for which they need to invest regularly.

Investment via SIP can help mitigate market volatility due to the inherent rupee-cost feature. SIPs particularly work in investors' favour when markets correct or move flat. This is because every SIP instalment gets triggered at a lower NAV.

Besides, SIP offers flexibility by offering a wide range of options --ranging from increasing SIP, decreasing, pausing, and even discontinuing SIPs at any given point in time.

Before beginning an SIP investment, it is important to set priorities and targets to accomplish different financial goals. Accordingly, for each of the financial goals, investors need to save and invest adequate money to achieve them in the future. It is prudent to plan the financial goals systematically and dedicate a time frame to achieve them.

Planning goals on time can help investors become financially secure in the future. For this, they need to channelise their current financial investments in such a manner that it generates returns over a period that fulfils their targeted goals. The SIP calculator is a great tool that helps investors to plan their mutual fund investments for different goals.

How the SIP Calculator Can Help Investors Achieve Financial Goals
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What are the benefits of using a SIP calculator

  • Helps determine investment amount - Using the SIP calculator makes it easier for investors to understand more about the right amount to be invested to achieve a certain financial goal.

  • User-friendly calculation option - Investors do not have to crunch complex mathematical formulas to use a SIP calculator. All investors need to do is enter some basic details such as the amount to be invested, the tenure of investment, and the expected rate of return to get the results online. Such user-friendly nature of the calculator makes it accessible and useful for everyone.

  • Aids in making informed decisions - An SIP calculator helps investors make an informed decision about their mutual fund investments and ensure that their financial goals are aligned with them. An SIP calculator helps investors estimate and plan their investments in terms of how much they need to save and invest towards their investment goals and whether there is a need to step-up the SIP amount.

How the SIP calculator works

The SIP Calculator, also known as the SIP Return Calculator, estimates the returns on mutual fund investments made through the Systematic Investment Plan. It helps investors determine how much they need to invest, examines the existing investment, and displays an estimated future value.

Many individuals use the Excel App for calculating the SIP amount, but using the SIP Calculator available on various fund house portals and/or fintech platforms makes the task easy for investors. It saves time by eliminating the need to perform complex computations.

SIP Calculator
Monthly SIP amount 5,000
Number of years 5
Expected rate of return (p.a.) 10%
The future value of investment (Rs.) 3,90,412
(For illustration purpose only)

Do keep in mind, though, that an SIP calculator will only be able to estimate the future value of the goals. Actual value may depend on several factors, including market movements and fluctuations, tenure of investment, fund performance, etc.

Once the investment amount is determined, there is also a need to evaluate and identify worthy process-driven mutual fund schemes that are suitable as per investors' risk profile and investment horizon.

In addition, to track the progress of the SIP investment investors can use the XIRR calculator. They can also use the XIRR calculator to compare the performance vis-a-vis the benchmark and other schemes within the category.

[Read: What is XIRR in Mutual Funds? And How to Calculate it?]

The Extended Internal Rate of Return (XIRR) Calculator is an easy and useful tool for calculating SIP returns. This method is useful when cash flows have irregular intervals as it takes into account a series of transactions made over time, including outflows, rewards, and switches. The XIRR formula calculates the annual average return of each SIP instalment to give the total average annual return on investments. It can also be helpful in comparing performance with the benchmark and peers.

To calculate returns, XIRR discounts the cash flows based on the timing of the flows to arrive at the present value of the investment. Cash flows that occur earlier during the investment tenure are discounted less, while the ones that occur later are discounted more. This is because the value of money diminishes over time.

If investors are investing in mutual funds by SIP, staggering their lumpsum investment, or redeeming via SWP, XIRR can handle both scenarios and assist them in computing a consolidated return by accounting for the date of all the transactions, both buy and sell.

XIRR in mutual funds can be calculated by using a simple function on Microsoft Excel. All investors have to do is enter the cash inflows/outflows along with the date of transaction. Investors can get details of transaction from the statement of account the mutual funds provide on a monthly basis.

To calculate the XIRR, enter all cash outflows (SIP instalment, lump sum purchases) as negative values and all cash inflows (SWP, redemptions) as positive values. Then enter the current value of the investment along with the date to calculate the XIRR of mutual fund investment.

Let's take an example of a monthly SIP of Rs 5,000 on the 1st of every month. If the SIP date falls on a public holiday or a weekend, the SIP purchase will take place on the next business day. To calculate XIRR, enter details of all SIP purchases and the current value or the redemption value along with the date in the Excel columns. In the cell below, type in the formula =XIRR (B2:B14,A2:A14)*100 and hit Enter. The XIRR in the below example is 15.77%.

XIRR calculation in Excel

1 Transaction Date Cash Flows
2 1-Jan-22 -5000
3 1-Feb-22 -5000
4 1-Mar-22 -5000
5 1-Apr-22 -5000
6 3-May-22 -5000
7 1-Jun-22 -5000
8 1-Jul-22 -5000
9 2-Aug-22 -5000
10 1-Sep-22 -5000
11 1-Oct-22 -5000
12 1-Nov-22 -5000
13 1-Dec-22 -5000
14 31-Dec-22 65,000
15 SIP returns (XIRR) 15.77%
(For illustration purpose only)

To Conclude

Investment in mutual funds via SIP is an easy, convenient, and smart way to achieve one's long-term goals, and an SIP calculator makes this key task easier. However, investors need to ensure that they invest the right amount or else they could fall short of achieving their desired corpus. Investors may also consider stepping-up the SIP amount to beat inflation and to accumulate a bigger corpus.


DIVYA GROVER is the co-editor for FundSelect, the flagship research service of PersonalFN. She is also the co-editor of DebtSelect. Divya is an avid reader which helps her in analysing industry trends and producing insightful articles for PersonalFN’s popular newsletter – Daily Wealth letter, read by over 1.5 lakh subscribers.

Divya joined PersonalFN in 2019 and has since then used stringent quantitative and qualitative parameters to analyse funds to provide honest and unbiased research to investors. She endeavours to enable investors to make an informed investment decision and thereby safeguard their wealth.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.

Disclaimer: This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision.