About SIP and Compounding
A Systematic Investment Plan (SIP) allows investors to invest a fixed amount regularly into mutual funds. It is one of the most disciplined and effective ways to create long-term wealth. The SIP calculator helps estimate how much wealth can be accumulated over time by leveraging the power of compounding.
Formula for SIP Maturity Value
FV = P × ((1 + r)^n - 1) × (1 + r) / rWhere P = monthly investment, r = monthly rate of return, and n = total number of months. This formula considers compounding each month.
Example Calculation
If you invest ₹5,000 per month for 10 years at a 12% annual return (1% per month), the calculation is:
FV = 5000 × ((1 + 0.01)^120 - 1) × (1 + 0.01) / 0.01 = ₹11,61,695
Total investment = ₹6,00,000, total returns = ₹5,61,695.
Why SIP is Effective
Power of Compounding: Returns generate additional earnings over time.Rupee Cost Averaging: You buy more units when prices are low, reducing average cost.Disciplined Saving: Automatic monthly investments build consistent habits.Flexibility: SIPs can be started or stopped anytime and with low amounts.
Tips for Investors
Start early to maximize compounding benefits.
Increase SIP amount periodically with income growth.
Stay invested through market cycles to smooth volatility.
Review portfolio performance annually.
Difference between SIP and Lump Sum
Aspect SIP Lump Sum
Investment Mode Monthly, Regular One-time Market Timing Risk Reduced (Averaged) High Best for Regular income earners Investors with surplus funds Returns Nature Steady, Compounded Monthly Dependent on entry time
Summary
The SIP calculator by Caltoo empowers investors to visualize how disciplined monthly investments grow over time. By adjusting the investment period, return rate, and contribution, you can identify achievable goals like retirement, education, or wealth creation. Compounding turns consistent saving into significant wealth over time. Start your SIP journey today with knowledge, patience, and consistency.
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