The rate you choose is a forecast
Enter an instalment, a rate and a period, and the calculator compounds them. Simple enough. The difficulty is that one of those three inputs is a prediction, and it is the one the answer is most sensitive to.
Most people fill it in by looking up a scheme's recent return. It is the obvious thing to do, and it is the main reason SIP projections disappoint.
Why recent performance is a poor input
Fund managers invest according to a style — growth, value, quality, momentum — and styles move in cycles. A fund whose approach suited the last several years will show excellent trailing numbers precisely because conditions favoured it. Those conditions are not a constant.
The pattern repeats across markets and decades: investors extrapolate the recent past, allocate to whatever has just performed, and then receive the next part of the cycle instead. Entering a scheme's best trailing figure into a calculator is the arithmetic version of that mistake.
A more defensible method:
- Start with a long-run assumption for the category, not the scheme.
- Subtract the scheme's expense ratio, since the headline figures you see are after it but your assumption probably was not.
- Round down rather than up.
- Run the result again two percentage points lower and check the plan still works.
A plan that survives the lower number is a plan. A plan that needs the higher number is a hope.
What a SIP does and does not fix
A SIP buys the same rupee amount regardless of price, so you accumulate more units when markets fall and fewer when they rise. Your average cost settles below the average price over a volatile period. That is a real benefit and it is why SIPs suit equity.
What it does not do is guarantee anything about the value at the end. The final figure depends on the market level when you stop, and no amount of averaging on the way in changes where the market happens to be on the way out. For money needed at a fixed date, that risk is managed by shifting to something stable as the date approaches, not by the SIP itself.
How to use this calculator
- Enter the monthly investment you can sustain without interruption.
- Set an expected return rate derived from the category and reduced for the expense ratio.
- Set the time period.
- Compare with Lumpsum if you have the full amount available today.
Before the number: costs and tax
The projection is gross. The expense ratio is already being deducted from NAV every day you hold the fund; an exit load may apply if you redeem within a year; and equity gains above ₹1.25 lakh in a financial year are taxable. A direct plan costs less than a regular plan for the same portfolio, and over a long SIP that difference is substantial.