What it works out
Paying a fixed amount into an investment every month is called regular investing. In India and some other countries it is known as a systematic investment plan, or SIP; elsewhere it is a monthly savings plan.
The arithmetic treats each payment as a separate sum that compounds from the day it is paid until the end. The first payment compounds for the longest and the last for the shortest, which is why the growth in the chart is thin in the early years and thicker in the later ones.
The formula needs one rate, and the same rate every month. No investment behaves like that. Real values rise and fall, sometimes sharply, and the order in which good and bad years arrive changes the result even when the average is the same. The calculator shows what a steady rate would do, so that the effect of time and of the amount can be seen. It does not show what will happen.
What the sum leaves out
- Charges are left out. A yearly charge works much like a lower rate: entering the rate less the charge shows its effect.
- Tax is left out. The tax drag calculator shows what a tax on growth does over time.
- Rising prices are left out. A sum twenty years from now buys less than the same sum today; the inflation calculator shows how much less.
- A single rate hides the swings. A plan that averages a given rate can still be worth less than was paid in, for years at a time.
- Buying at regular intervals spreads purchases over time. It does not remove the risk of loss.
Questions people ask
- What is a SIP?
- A systematic investment plan: an instruction to pay a fixed amount into an investment at regular intervals, usually monthly. The term is common in India. The arithmetic is the same as for any regular payment that compounds.
- Which rate do I enter in a regular investing calculator?
- That is your own assumption, and the calculator cannot supply it. No rate is known in advance. Entering several, including zero and a negative one, shows how much of the result depends on the assumption.
- Why does a real statement differ from the calculator?
- A real investment does not grow at one steady rate, payments fall on different days, and charges and taxes are taken. The calculator uses one rate, twelve equal months and no deductions.
Arithmetic on figures you supply, for study. Educational information, not investment advice or a recommendation to trade. It takes no account of your circumstances, and nothing typed into the calculator is sent or stored.