{"id":210,"date":"2018-09-23T12:10:56","date_gmt":"2018-09-23T06:40:56","guid":{"rendered":"https:\/\/srinivesh.in\/blog\/?p=210"},"modified":"2019-02-10T18:59:13","modified_gmt":"2019-02-10T13:29:13","slug":"calculators-for-sip-choose-the-step-up-option","status":"publish","type":"post","link":"https:\/\/srinivesh.in\/blog\/calculators-for-sip-choose-the-step-up-option\/","title":{"rendered":"Calculators for SIP &#8211; Choose the &#8216;Step-Up&#8217; option"},"content":{"rendered":"<p>Systematic Investment Plan (SIP) is growing in popularity every month. A good percentage of mutual fund inflows is through SIPs. It is so popular that many new investors think that SIP is a product or plan, rather than a simple investment arrangement.<\/p>\n<p>A large number of calculators exist to help one with planning a SIP. Most calculators miss the most critical input &#8211; the projected increase in investment amount. In this article we look at the importance of this estimate &#8211; by including this estimate the accumulation can be almost 50% higher over 10 years.\u00a0 The rare &#8216;Step UP SIP&#8217; calculators include this factor\u00a0 and provide more realistic estimates.<\/p>\n<h2>What is SIP?<\/h2>\n<p>Surprisingly, the term SIP is not India specific. To illustrate, here is one definition: <a href=\"https:\/\/www.investopedia.com\/ask\/answers\/102814\/what-are-main-differences-between-systematic-investment-plan-sip-and-mutual-funds.asp\">SIP &#8211; Global Definition<\/a><\/p>\n<p>The public discussion on SIP is so much that some new investors are led to believe that SIP is a product, rather a mechanism. In almost all cases, the investor sets up a SIP with a mutual fund by specifying the following:<\/p>\n<ul>\n<li>(usually) monthly amount<\/li>\n<li>date of investment, and<\/li>\n<li>the number of periods<\/li>\n<\/ul>\n<p>Since the inputs to create a SIP are the above, almost all the calculators use only the above inputs.<\/p>\n<h2>Inputs needed for Periodic Investment<\/h2>\n<p>Salaried individuals form a large portion of the investors using SIP. The monthly outgo in SIP very well aligns with the monthly salary inflow.A typical, and a very important, feature of salary income is that it increases periodically, usually yearly. The expected increase could vary depending on the job and career, but the increases do happen.\u00a0 It is natural that financial plans should factor this in. A young professional who can invest 10,000 per month when she is 25 can typically invest more &#8211; say 11,000 per month, when she is 26.<\/p>\n<p>Any calculator that estimates the corpus built from periodic investments should then use the following factors.<\/p>\n<ul>\n<li>Investment amount<\/li>\n<li>Periodicity of investment (usually monthly)<\/li>\n<li>Length of investments &#8211; in months or years<\/li>\n<li>Expected rate of return<\/li>\n<li>And, Expected increase in investment amount<\/li>\n<\/ul>\n<p>However since a typical SIP mandate does not include the increase in amount, most of the SIP calculators omit this input. The following are examples of actual SIP calculators that are popular.<\/p>\n<h4>Example 1<\/h4>\n<div class=\"PT10 PB10 brdt\"><em><label class=\"FL PR10 gL_13 sipLabel\">Amount you want to invest per month<\/label> <input id=\"txtRegInv\" class=\"qt_ser_input brdall\" maxlength=\"8\" name=\"txtRegInv\" size=\"8\" type=\"text\" value=\"\" data-cip-id=\"txtRegInv\" \/> <span class=\"PL10\">Rs<\/span><\/em><\/div>\n<div class=\"PT10 PB10 brdt\"><em><label class=\"FL PR10 gL_13 sipLabel\">Expected Rate of Return<\/label> <input id=\"txtRetRate\" class=\"qt_ser_input brdall\" maxlength=\"5\" name=\"txtRetRate\" size=\"3\" type=\"text\" value=\"\" data-cip-id=\"txtRetRate\" \/> <span class=\"PL10\">% per annum<\/span><\/em><\/div>\n<div class=\"PT10 PB10 brdt\"><em><label class=\"FL PR10 gL_13 sipLabel\">Value of my investment after<\/label> <input id=\"txtYear\" class=\"qt_ser_input brdall\" maxlength=\"2\" name=\"txtYear\" size=\"3\" type=\"text\" value=\"\" data-cip-id=\"txtYear\" \/> <span class=\"PL10\">years<\/span><\/em><\/div>\n<div><\/div>\n<h4>Example 2<\/h4>\n<div class=\"col-sm-6\">\n<div class=\"form-group\"><em><label for=\"amountInputField\">Monthly Investment Amount (Rs.)<\/label> <input id=\"amountInputField\" class=\"form-control\" required=\"\" type=\"text\" placeholder=\"20000\" data-name=\"amount\" data-cip-id=\"amountInputField\" \/><\/em><\/div>\n<\/div>\n<div class=\"col-sm-6\">\n<div class=\"row\">\n<div class=\"col-xs-7\">\n<p><em><label for=\"periodInputField\">Investment Period<\/label><\/em><\/p>\n<div class=\"input-group\"><em><input id=\"periodInputField\" class=\"form-control\" required=\"\" type=\"text\" placeholder=\"10\" data-name=\"period\" data-cip-id=\"periodInputField\" \/> <span id=\"period-addon\" class=\"input-group-addon\">years<\/span><\/em><\/div>\n<\/div>\n<\/div>\n<\/div>\n<div class=\"col-sm-12\">\n<div class=\"row\">\n<div class=\"col-xs-6\">\n<div class=\"form-group\"><em><label for=\"returnRateInputField\">Expected Annual Returns (%)<\/label> <input id=\"returnRateInputField\" class=\"form-control\" required=\"\" type=\"text\" placeholder=\"15\" data-name=\"return_rate\" data-cip-id=\"returnRateInputField\" \/><\/em><\/div>\n<\/div>\n<div class=\"col-xs-4\">\n<div class=\"form-group\"><em><label for=\"inflationInputField\">Adjust for Inflation ?<\/label><\/em><\/div>\n<\/div>\n<\/div>\n<\/div>\n<div class=\"col-sm-12\">\n<div class=\"row\"><\/div>\n<\/div>\n<div class=\"col-sm-6\">\n<div class=\"form-group\">This calculator includes a choice to factor in an inflation amount. But it misses the &#8216;step-&#8216;up&#8217; factor. The estimate from this calculator for the suggested inputs is about 23 lacs.<\/div>\n<\/div>\n<h4>Example 3<\/h4>\n<p><em>Monthly Deposit Amount Rs\u00a0<input id=\"principle\" size=\"20px\" type=\"text\" data-cip-id=\"principle\" \/>\u00a0<span id=\"one\"><\/span><\/em><\/p>\n<p><em>Time Period (in months) <input id=\"time\" size=\"20px\" type=\"text\" data-cip-id=\"time\" \/>\u00a0<span id=\"two\"><\/span><\/em><\/p>\n<p><em>Interest Rate\u00a0(%) <input id=\"rate\" size=\"20px\" type=\"text\" data-cip-id=\"rate\" \/>\u00a0<span id=\"three\"><\/span><\/em><\/p>\n<p><em>Frequency Of Compounding<\/em><\/p>\n<p>This calculator includes an additional parameter on frequency of compounding &#8211; monthly, quarterly, etc.<\/p>\n<h4>Example 4<\/h4>\n<p>Another calculator provides a good explanation of the input fields. Again the step-up field is missing.<\/p>\n<p><em>To use this calculator, you are required to provide the following details:<\/em><br \/>\n<em>a) How much money do you want to invest, i.e., monthly investment amount<\/em><br \/>\n<em>b) Duration of investment, i.e., how long you will be investing<\/em><br \/>\n<em>c) Frequency of investment, i.e., monthly, quarterly or yearly<\/em><br \/>\n<em>d) Percentage of expected returns, i.e., how much returns do you expect from your investments.\u00a0<\/em><\/p>\n<div class=\"row\">\n<div class=\"col-md-12 sub-title\">\n<h4>Example 5<\/h4>\n<p>This example takes as input the desired corpus and calculates the monthly investment required.\u00a0 Again it misses the most useful input<\/p>\n<p class=\"description\"><em>Get a plan to invest a fixed amount every month and achieve your desired savings.<\/em><\/p>\n<\/div>\n<\/div>\n<div class=\"row\">\n<div class=\"col-md-12\">\n<div class=\"box\">\n<div class=\"row calculator-area m-0 disp-flex\">\n<div class=\"col-sm-7 pr-0 pr-xs-1\">\n<div class=\"row\">\n<div class=\"col-md-12 p-0\">\n<div class=\"internal-fields\">\n<p><em><label>Tenure in which you would like to achieve your goal?<\/label><\/em><\/p>\n<div class=\"slider-box rel slider-wid marB30\">\n<div id=\"sliderYears\" class=\"slider\"><\/div>\n<p><em><span class=\"slider-min sliderYearsMin\">1 Yr<\/span> <span class=\"slider-max sliderYearsMax\">30 Yrs<\/span><\/em><\/p>\n<\/div>\n<\/div>\n<\/div>\n<div class=\"col-md-12 p-0\">\n<div class=\"internal-fields\">\n<p><em><label>Drag to select the sum you would like to target?<\/label><\/em><\/p>\n<div class=\"slider-box rel slider-wid marB30\">\n<div id=\"sliderAmount\" class=\"slider\"><\/div>\n<p><em><span class=\"slider-min sliderAmountMin\">10K<\/span> <span class=\"slider-max sliderAmountMax\">99Cr<\/span><\/em><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<div class=\"row\">\n<div class=\"col-sm-12 internal-fields border-bottom-0\">\n<div class=\"col-sm-7 pl-0 pr-xs-0\"><em><label>Expected Rate of Return<\/label><\/em><\/div>\n<\/div>\n<\/div>\n<\/div>\n<div class=\"custom-drop\"><\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<h2 class=\"col-sm-5 pr-0 pl-xs-0\">The correct set of inputs for SIP<\/h2>\n<p>Many plans have a concept of &#8216;Step Up SIP&#8217; &#8211; The investor starts with an amount initially, and then steps it up every year. Ideally this should be done as a percentage, but it can also be done as an amount.<\/p>\n<p>A more detailed description of the calculation is, as expected, at <a href=\"https:\/\/freefincal.com\/step-up-sip-calculator\/\">freefincal<\/a><\/p>\n<table width=\"334\">\n<tbody>\n<tr>\n<td width=\"253\">Years to goal<\/td>\n<td width=\"81\">10<\/td>\n<\/tr>\n<tr>\n<td>Amount you can save each month<\/td>\n<td>10000<\/td>\n<\/tr>\n<tr>\n<td>Net rate of return (annual)<\/td>\n<td>12.00%<\/td>\n<\/tr>\n<tr>\n<td>Annual increase in monthly invest. %<\/td>\n<td>10.00%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<div><\/div>\n<div>For the same set of values as in Example 2, this calculator estimates a corpus of 34plus lacs.\u00a0 This is almost 50% more.\u00a0 In a different calculation, if you assume that you can step up the amount by 10% every year, you can then start with an amount less than Rs 7000 per month in the first year, instead of Rs 10,000 per month. For young investors, this is a huge motivation!<\/div>\n<div><\/div>\n<div>For any investment need in India, you can find the right calculator at freefincal.com &#8211; most of these are in excel format. If you want an online version, a reasonable substitute is given by <a href=\"https:\/\/www.fundsindia.com\/content\/jsp\/calculators\/MutulfundSipCalcAction.do?method=stepupSIP\" rel=\"nofollow\">FundsIndia <\/a>and <a href=\"https:\/\/www.fundzbazar.com\/calculator\/sipstepup\" rel=\"nofollow\">FundsBazaar<\/a><\/div>\n<div><\/div>\n<div>Happy Investing!<\/div>\n<div><\/div>\n<div>Please leave your comment below.<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Systematic Investment Plan (SIP) is growing in popularity every month. A good percentage of mutual fund inflows is through SIPs. It is so popular that many new investors think that SIP is a product or plan, rather than a simple <a href=\"https:\/\/srinivesh.in\/blog\/calculators-for-sip-choose-the-step-up-option\/\" class=\"more-link\">Read More<\/a><\/p>\n","protected":false},"author":4,"featured_media":211,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_themeisle_gutenberg_block_has_review":false,"footnotes":""},"categories":[6,7],"tags":[41,16,40],"class_list":["post-210","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mf","category-plan","tag-goal-planner","tag-sip","tag-step-up-sip"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/posts\/210","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/comments?post=210"}],"version-history":[{"count":6,"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/posts\/210\/revisions"}],"predecessor-version":[{"id":517,"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/posts\/210\/revisions\/517"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/media\/211"}],"wp:attachment":[{"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/media?parent=210"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/categories?post=210"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/srinivesh.in\/blog\/wp-json\/wp\/v2\/tags?post=210"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}