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Keeping track of your investments is essential to understand whether your financial decisions are working for you or not. One typical investment you may be undertaking is investing in mutual funds through Systematic Investment Plans (SIPs).

Calculating SIP returns can be complicated. It's because you invest a fixed sum at regular intervals and accumulate mutual fund units over time. However, the market performance might vary over the investment period, and each block of units may give you different returns depending on the investment duration and market performance

If you want to understand SIP returns calculation, an effortless way is to use SIP calculators. ICICI Direct's SIP calculator is straightforward to use. All you need to do is enter essential parameters such as the monthly investment amount, expected return rate, and investment duration for your desired SIP Plan. Using this, the calculator gives you the total returns. 

However, you may want to understand how an SIP calculator works in case you want to cross-check the computation. This article will explain how SIP calculators compute returns

What is an SIP Calculator?

Before going into calculations, you need to know what an SIP calculator is. An online tool computes your total returns if you input details about your investment and expected return percentage.

SIP Calculators can be great aids to help you invest wisely towards a goal. The right SIP calculator, such as ICICI Direct’s SIP calculator, can help you make complex financial calculations easily so that you get a roadmap to achieving your financial goals.

However, do keep in mind that SIP calculators provide you an estimate of the returns and not the actual return. These may vary depending upon things such as market performance and expense ratio of the fund

How Do SIP Calculators Compute Returns?

SIP Calculators use the compound interest formula to estimate your returns. The compound interest formula is:

FV= P ({[1 + i] n – 1 / i) * (1 + i)

where

FV = The future value of the investment or the maturity amount

P= Regular SIP investments made

n= Total number of investments made

i= (rate of interest)/ 100

Using this formula, SIP calculators compute your returns for you.

For instance, if you are investing Rs. 10,000 every month for 10 years. You expect a rate of return of 12%. When you input these figures in an SIP calculator, you will get a total return of Rs. 23,23, 391. The calculator will further split the total investment and total returns – giving you an investment amount of Rs. 12,00,000 and returns of Rs. 11,23,391. If you change the rate of return or the duration of investment, then your total returns will also change.

Benefits of Using an SIP Calculator

1. SIP Calculators are easy to use.

2. They give you results within seconds, as opposed to the time it would take for you to compute the same

3. They will give you a split up of the total investment made and the returns earned, so you can better monitor your investment’s performance

4. You can also get a graphical representation for better understanding

5. SIP Calculators are free to use!

Takeaway

SIP calculations can be complex to understand. However, that’s why SIP Calculators like ICICI Direct’s exist. You simply have to input basic details, and you will get your returns computed for you in seconds, which can help you invest in SIP through the ICICIdirectDemat and trading account

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