SIP calculator

What a SIP is

Most of us are used to paying EMIs. A phone, a bike, a fridge: a fixed amount leaves the bank account every month, and the thing we bought slowly loses value. A SIP (systematic investment plan) turns that habit around. It is an EMI you pay to yourself.

Every month, a fixed amount goes from your bank account into a mutual fund on a date you choose. Think of the gullak (piggy bank) many of us had as children. The difference is that a gullak only holds coins. A SIP puts each instalment to work, so the money it earns starts earning too. That is compounding.

A SIP also spreads your buying over time. This is called rupee cost averaging. Say you put ₹1,000 a month into a fund. In month one the unit price is ₹20, so you get 50 units. In month two the market falls and the price is ₹10, so you get 100 units. In month three it is back at ₹20 and you get 50 units. You paid ₹3,000 for 200 units, an average of ₹15 a unit, though the average price over those months was about ₹16.67. You buy more when prices are low without having to time anything.

This page is a guide, not financial advice. Mutual funds carry market risk, and returns are not guaranteed.

How to use this tool

Fill in three things:

1. Monthly amount: what you will invest each month. Many funds accept SIPs from ₹500.
2. Expected return: a yearly rate you think is fair. Equity funds have no fixed rate, so try a few values, for example 8%, 10% and 12%.
3. Years: how long you will keep investing.

The answer shows what you put in, what it may grow to, and the gain. The tool assumes each instalment goes in at the start of the month and grows every month.

Then try the switches:

• Step-up raises your SIP by a set percentage every year, the way salaries usually rise.
• Inflation shows the final amount in today's money, so you can see what it will really buy.
• After tax takes off the capital gains tax you may pay when you sell.

If you know the amount you need, switch to I have a goal. Enter the target and the years, and the tool works out the monthly SIP you would need.

Kavya's story

Kavya is 25 and works as a nurse in Villupuram. She decides to put ₹5,000 a month into an equity fund and leave it for 25 years. She uses 12% a year as her expected return.

In her gullak, the same ₹15 lakh would still be ₹15 lakh. The growth comes from time. In the early years the pot grows slowly. From about the sixth year, at 12%, the pot grows by more each month than the ₹5,000 she adds. After that, the pot does most of the work.

Step-up and the cost of waiting

Kavya's salary will not stay the same for 25 years, so her SIP need not either. If she raises it by 10% every year (₹5,000 in year one, ₹5,500 in year two, and so on), she puts in about ₹59 lakh in total, and at 12% the pot may reach about ₹2.14 crore. That is more than double the flat SIP.

Waiting has a cost too. Suppose Kavya's friend in the same hospital starts the same ₹5,000 SIP five years later and invests for 20 years. She puts in ₹12 lakh, just ₹3 lakh less than Kavya. Her pot may reach about ₹50 lakh, roughly ₹44.9 lakh less. The last five years of compounding are the most valuable ones, and they are the years she gave up.

Goal mode tells the same story. To reach ₹1 crore at 12% you need about ₹10,000 a month over 20 years, but only about ₹5,270 a month over 25 years.

Tax and inflation

For equity mutual funds, the rules from 23 July 2024 are:

• Long-term gains (units held 12 months or more): tax of 12.5% on gains above ₹1.25 lakh in a financial year.
• Short-term gains (units held under 12 months): tax of 20%.

Each SIP instalment counts as its own purchase, so each one has its own 12-month clock. If Kavya sold everything in one year and all her gain were long-term, the tax would be about ₹9.8 lakh, leaving about ₹85 lakh. Many people sell in parts over several years to use the ₹1.25 lakh limit more than once. Tax rules change, so check the current rules before you sell.

Inflation matters as much as tax. If prices rise by 6% a year, ₹94.9 lakh in 25 years will buy about what ₹22.1 lakh buys today. That is still far more than she put in, but it is a more honest number to plan with. Turn on the inflation switch when you set a goal.

Common mistakes

• Using a high return to feel good. A 15% or 18% figure makes the chart look exciting. Plan with a lower rate and treat anything more as a bonus.
• Stopping the SIP when markets fall. Falls are when your SIP buys the most units. Stopping then undoes rupee cost averaging.
• Forgetting inflation. A crore in 25 years is not a crore today.
• Never raising the SIP. Even a small yearly step-up changes the result a lot.
• Using equity for short goals. For money you need in two or three years, equity can be down just when you need it.
• Ignoring fees. A direct plan of a fund has a lower expense ratio than the regular plan of the same fund.

A short checklist

1. Write down the goal, the amount and the year you need it.
2. Use goal mode to find the monthly SIP, at a modest return.
3. Turn on inflation and after tax to see the real picture.
4. Set the SIP date a few days after your salary comes in.
5. Add a yearly step-up, even 5% to 10%.
6. Review once a year, not every day, and keep going through the falls.