SIP Calculation: Many people in India today are turning towards Systematic Investment Plans (SIP) to build wealth. SIP is one of the easiest ways to invest in mutual funds. You don’t need a large amount to begin; even Rs 500 a month is enough. The best part is that SIP works on the principle of discipline and regular investment.
SIP stands for Systematic Investment Plan. It allows you to invest a fixed amount regularly (monthly or quarterly) in a mutual fund scheme. Instead of investing a big amount at once, SIP helps you invest small amounts over time.
SIP is beneficial because of rupee cost averaging and power of compounding. This means that the longer you stay invested, the bigger your wealth grows.
Basic SIP Calculation
Let’s assume you invest Rs 2000 every month in a SIP. Now the main question is – how much time will it take to reach Rs 1 lakh?
We have to look at two things:
- The amount invested (Principal)
- The return on investment (expected interest rate)
Mutual funds usually give returns between 10% and 14% per year (though not guaranteed). To keep things simple, let us take an average return of 12% per year.
Formula Used
The formula for SIP calculation is:
Future Value (FV) = P × [(1 + r/n)^(n×t) – 1] ÷ (r/n) × (1 + r/n)
Where,
- P = monthly investment
- r = expected annual return (in decimal)
- n = number of installments in a year (12 for monthly)
- t = time in years
Don’t worry if the formula looks difficult. Let’s simplify with numbers.
Step-by-Step Example
- Monthly SIP (P) = Rs 2000
- Expected return (r) = 12% = 0.12
- Number of months in a year (n) = 12
We want to find out how many years (t) it will take to reach Rs 1 lakh.
Case 1: Without Returns (0% Interest)
If there is no return at all, then:
- Rs 2000 per month = Rs 24,000 per year
- To make Rs 1 lakh, you need 100000 ÷ 24000 = about 4.2 years
So, in 4 years and 2 months, you can save Rs 1 lakh without any returns.
Case 2: With 12% Returns
When we add 12% return, the money grows faster. Let’s see:
- After 4 years, your SIP of Rs 2000 per month will become around Rs 1.17 lakh.
- That means you will reach your Rs 1 lakh goal even before completing 4 years.
So, with expected returns, your target will be reached in about 3 years and 9 months.
Overview Table of SIP Growth
| Monthly SIP | Total Investment (Years) | Value with 12% Return |
|---|---|---|
| Rs 2000 | 1 Year (Rs 24,000) | Rs 25,500 approx. |
| Rs 2000 | 2 Years (Rs 48,000) | Rs 54,100 approx. |
| Rs 2000 | 3 Years (Rs 72,000) | Rs 86,600 approx. |
| Rs 2000 | 4 Years (Rs 96,000) | Rs 1.17 lakh approx. |
| Rs 2000 | 5 Years (Rs 1.2 lakh) | Rs 1.64 lakh approx. |
From this table, you can clearly see that the target of Rs 1 lakh is achieved before 4 years when invested in SIP with an average return of 12%.
Why SIP is a Smart Choice?
- Small Investment, Big Growth – You don’t need lakhs to start; even Rs 2000 monthly can grow into a large amount over time.
- Power of Compounding – The longer you invest, the more your money multiplies.
- Disciplined Savings – SIP helps you to save regularly without pressure.
- Flexibility – You can increase, decrease, or stop SIP anytime.
Final Answer
If you invest Rs 2000 every month in SIP, then:
- Without any returns, you will reach Rs 1 lakh in about 4 years and 2 months.
- With an average return of 12% per year, you will reach Rs 1 lakh in about 3 years and 9 months.
Conclusion
SIP is one of the safest and smartest ways to build wealth for your future. Even a small amount like Rs 2000 per month can help you achieve big financial goals. The key is to start early, invest regularly, and stay invested for a longer period
