How to Calculate SIP Returns in 3 Effective Ways
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.
Priya Nair
Senior Compliance Editor at IFSC.co
2 min read
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.
What is an SIP?
SIP stands for Systematic Investment Plan, an investment mode in which an individual invests a fixed amount at regular intervals in a mutual fund scheme. SIPs help smooth out buying costs and take advantage of compounding.
Why Calculate SIP Returns?
Knowing how to calculate SIP returns helps evaluate performance and compare different mutual fund schemes effectively.
Key Concepts
- NAV: Price per unit of mutual fund.
- Units Purchased: Units bought per SIP installment.
- Investment Tenure: Duration of SIP investment.
- Total Investment: Total amount invested.
- Current Value: Market value of investment.
Methods to Calculate SIP Returns
1. Absolute Returns
Formula:
Absolute Return (%) = (Current Value − Total Investment) ÷ Total Investment × 100
Example: ₹12,000 invested → ₹13,500 current value
Return = 12.5%
2. CAGR (Annualised Return)
CAGR = (Final Value / Investment)^(1 / Years) − 1
Example: ₹5,000 monthly for 5 years → Total investment ₹3,00,000 → Value ₹3,25,000
3. XIRR (Most Accurate Method)
XIRR considers exact investment dates and irregular cash flows. It is best calculated using Excel or Google Sheets.
| Date | Amount |
|---|---|
| 01-Jan-2023 | -1000 |
| 01-Feb-2023 | -1000 |
| 01-Mar-2023 | -1000 |
| 31-Dec-2023 | 13500 |
Excel Formula:
=XIRR(values, dates)
Using Online SIP Calculators
Enter monthly amount, tenure, and expected return to instantly calculate SIP returns.
Tips for Better SIP Returns
- Regular Monitoring
- Reinvest Dividends
- Consider Inflation
- Diversify Investments
Common Mistakes
- Ignoring Fees
- Overestimating Returns
- Neglecting Time Factor
Conclusion
Whether using Absolute Returns, CAGR, or XIRR, understanding SIP return calculations helps you make informed investment decisions.
Ready to simplify SIP return calculations? Use our free SIP calculator!
Frequently Asked Questions
1. What is the formula for SIP returns?
Amount invested × ({[1 + periodic rate]^number of payments − 1} / periodic rate) × (1 + periodic rate)
2. What if I invest ₹3000 per month for 5 years?
Total investment = ₹3000 × 60 = ₹1,80,000. Returns depend on the fund’s performance.
3. Is SIP risk-free?
No. SIPs are subject to market risks.
4. Can I withdraw SIP anytime?
Yes, but exit loads or taxes may apply.
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