How SIP Turns Small Investments into Big Returns with Compounding – Use the Calculator

Are you looking to invest in a SIP? If yes, you’re on the right page! In personal finance, compounding stands out as one of the most powerful tools for building wealth. Combined with Systematic Investment Plans (SIPs), it helps individuals turn small, regular investments into substantial wealth over time. with these Use the SIP Calculator.

SIP Investment Calculator

Investment Calculator

20 Years
12%

Results:

Wealth Gained: ₹

Invested Amount: ₹

Total Wealth: ₹

The SIP Calculator is a useful tool that helps investors estimate the future value of their investments made through a Systematic Investment Plan (SIP). By entering the monthly SIP amount, investment period, and expected rate of return, the calculator predicts the potential corpus at maturity. This tool enables investors to make informed decisions by offering a clear picture of how their SIP investments could grow over time.

Understanding SIPs

What is a SIP?

  • A Systematic Investment Plan (SIP) is a method of investing a fixed sum regularly in mutual funds.
  • It allows investors to buy units of a particular mutual fund scheme on a particular date each month.

Benefits of SIPs

  1.  Disciplined Investing: Encourages regular savings and investment habits.
  2. Rupee Cost Averaging: By investing a fixed amount regularly, investors buy more units when prices are low and fewer units when prices are high, averaging out the cost of investment.
  3. Flexibility: Investors can start with very small amounts, often as low as ₹500 per month, and can increase their investment as their financial situation improves.

The Power of Compounding

What is Compounding?

  • Compounding is when the value of an investment grows over time because you earn interest on both the original amount you invested and the interest that has already been added. This means that as time goes on, your investment can grow faster because you’re earning interest on more money each period..

How Compounding Works in SIPs

  1. When you invest through SIPs, the returns generated on your investments are reinvested, leading to the growth of your investment base.
  2. Over time, this can lead to high growth, as the returns start generating their own returns.

Real-Life Example of SIP and Compounding

Let’s say you invest ₹5,000 each month through a SIP, aiming to invest for 20 years with an expected annual return of 12%.

Assumptions:

  • Monthly SIP investment: ₹5,000
  • Investment duration: 20 years
  • Expected annual return: 12%

Calculation:

  • Total investment over 20 years: ₹5,000 x 12 months x 20 years = ₹12,00,000
  • Using a SIP calculator, the estimated corpus at the end of 20 years would be approximately ₹1,00,00,000.

Analysis:

The investor contributed ₹12,00,000, but the power of compounding allowed them to accumulate ₹1 crore, showcasing how small, consistent investments can yield significant returns.

 

Conclusion : Compounding is when your investment grows faster over time because you earn interest on both the original amount and the interest added earlier. This process helps your money grow at an increasing rate, leading to higher returns as time passes.

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FAQ:

Formula for SIP Calculation

Formula : "FV = P [ (1+i)^n-1 ] * (1+i)/i " FV = Future value or the amount you get at maturity. P = Amount you invest through SIP i = Compounded rate of return n = Investment duration in months

What is compounding in investment?

Compounding is when the interest earned on an investment is added to the original amount, so you earn interest on both the principal and the accumulated interest. This helps your investment grow faster over time.

How does compounding benefit long-term investments?

Over time, compounding accelerates your investment growth by reinvesting the interest earned. The longer you stay invested, the more your investment can grow exponentially, leading to higher returns.

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