InvestorQ : If I invest 6K SIP in mutual funds, how much can I accumulate in 10 years?
Tanya Mehta made post

If I invest 6K SIP in mutual funds, how much can I accumulate in 10 years?

Tarun Madaan answered.
4 years ago

The easiest way to calculate how much amount you can accumulate over a period of time is by using an SIP calculator. Here’s the link for such an SIP calculator.

The way an SIP calculator works is that it takes in to consideration the SIP amount, your investment tenure and the average rate of return.

The SIP calculator works on the formula = Principal amount * (1 + rate of expected return/total investment tenure)^no. of months invested

For your understanding, let’s suppose you start an SIP investment of Rs. 10,000 per month for a year. Every SIP of Rs. 10,000 at the beginning of the month will be considered a fresh investment.

Assuming the expected return rate is 12% per annum, the first SIP of Rs. 10,000 made on January 1 will give the following return: Rs. 10,000*(1+12%/12)^12 = Rs. 11,268

The second SIP of Rs. 10,000 made on February 1 would give following return: Rs. 10,000*(1+12%/12)^11 = Rs. 11,157

Similarly, the twelfth SIP of Rs. 10,000 made on December 1, would give you a return of 10,000*(1+12%/12)^1 = Rs. 10,100

By adding the returns of 12 SIPs we get expected amount at the end of the 1 year as Rs. 1,28,093.

Thus, amount invested = SIP amount * number of months, which in the above case will be Rs. 1,20,000

Consequently, wealth gain = expected amount - amount invested, which in this case is Rs. 1,28,093 - Rs. 1,20,000= Rs. 8,093

By taking your potential SIP investment into consideration and an expected return of 18% average return, you will have accumulated Rs. 20,17,545.

Honestly, it is impossible to know what the exact return rate will be, but historical returns percentage may be used as a reference. Do note, you can change the return rate to have a best-case and worst-case scenario in mind.