Confused about how to calculate SIP returns? Fret not. We cover 3 effective ways, tips and tricks and more to help you on this journey seamlessly.
Today, many individuals are investing in mutual funds to create wealth over time through a Systematic Investment Plan (SIP). But the real question arises: what is the return that one can get on such investments? It is essential to have a clear idea about that before making wise financial decisions. Let us see these steps in an easy-to-understand way.
SIP stands for Systematic Investment Plan, an investment mode in which an individual invests a fixed amount at regular intervals in any mutual fund scheme. You can buy the mutual fund units on the same date every month. SIPs are very useful in smoothing out the buying cost because of a consistent approach towards investing and taking the benefit of compounding.
Knowing how to calculate SIP returns is essential to understanding how your investments perform. It helps determine whether the investment strategy is working perfectly or needs some changes. Proper return computation also allows for a good comparison between different mutual fund schemes.
Before we discuss how to calculate SIP returns, there is a need to learn about a few concepts, which include:
Still wondering how to calculate SIP returns? There are several ways to calculate SIP returns. We’ll cover three common methods:
Absolute returns tell you the absolute increase or decrease in your investment amount in a simple percentage. They’re the most basic method, but they don’t adjust for the time value of money.
Formula: Absolute Return (%) = (Selling price – Purchase price) / Purchase price) x 100
Let’s consider an example. Suppose an investor invests ₹1000 every month for 12 months, for a total of ₹12,000. The current value of the investment is ₹13,500.
Absolute return formula: (₹13,500 - ₹12,000) / ₹12,000 x 100 = 12.5%
Compound Annual Growth Rate (CAGR) gives a much better perspective on returns as it factors in the period. It tells you the mean annual growth rate of your investments over a specified period.
Formula: (1 + Return) ^ (1 / N) - 1 = Annualized Return
Here, N is the time measured.
Let’s use the same example with a five-year investment period.
An investor decides to invest in a monthly SIP for 5 years. They invest a fixed amount of ₹5,000 every month. After 5 years, the total value of their investment becomes ₹3,25,000.
The best and most exact method for calculating your returns on an SIP is this one. This method takes irregular cash flows and your investments on exact dates into account, so it is best for SIP calculations.
You can easily do the XIRR calculation with the help of any spreadsheet software like Microsoft Excel or Google Sheets.
| Date | Amount |
|---|---|
| 01-Jan-2023 | -1000 |
| 01-Jan-2023 | -1000 |
| 01-Mar-2023 | -1000 |
| 01-Oct-2023 | -1000 |
| 01-Dec-2023 | 13500 |
Use the formula =XIRR(values, dates) in Excel or Google Sheets:
XIRR = XIRR({−1000,−1000,...,13500},{01−Jan−2023,01−Feb−2023,...,31−Dec−2023})
The above process is usually cumbersome for most people, so nowadays, many SIP calculators are available online, where all one needs to do is enter the relevant details.
These calculators require you to input your monthly invested amount, the amount of time, and the rate of returns likely to prevail. It will calculate the return for you.
Here are some tips that can help you make the most of your SIP Investments:
Let’s go through some common mistakes you should avoid when calculating SIP returns:
We hope you finally have the answer on how to calculate SIP returns. Whether you use the absolute returns method for a quick calculation, CAGR for annualised returns or XIRR for the most accurate calculation, understanding these methods will help you make better investment decisions. Remember, investing is a long journey. Regularly monitoring and adjusting your strategy will ensure you reach your financial goals.
Ready to simplify SIP return calculations and make informed investment decisions? Use our free SIP calculator!
The formula for calculating SIP returns is Amount invested × ({[1 + Periodic rate of interest] Total number payments – 1} / Periodic rate of interest) × (1 + Periodic rate of interest).
If you invest 3000 a month in an SIP for 5 years, your total investment would be: 3000 x 60 = 180,000. Returns will depend on the rate of return of your chosen SIP.
No, SIPs are not risk-free. They are subject to market risks as they invest in mutual funds, which can fluctuate based on market conditions.
Yes, you can withdraw your SIP anytime. However, depending on your holding period, there may be exit loads or taxes.
Wondering how SIP calculators work? We break down every core detail about them along with the mathematical formulas to help you use them with ease.
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