How to calculate the amount to invest in a Systematic Investment Plan (SIP)?

Are you are thinking of investing in a mutual fund using the systematic investment plan route, commonly called as SIP? How can you calculate the monthly amount that you need to invest in order to meet a particular financial goal? For example, if you want to fund your next overseas vacation (costing Rs. 5 lakhs today) 2 years from now how much money should you put in a SIP month on month?

To answer your question I have created a SIP calculator. Just enter the current value of your financial goal, which in this case is Rs. 5 lakhs, the expected rate of return which I have assumed as 12% per annum (I recommend to take a historical average, around 12-15%), the number of years you want to accumulate the amount in and the inflation rate which I have taken as 8% in this example. The inflation rate is important because it affects the future rate of your financial goal. So at 8% inflation a thing that costs Rs. 100 will cost Rs. 108 in a year from now.

As you can see you will need to invest Rs. 21, 407 in order to fund a vacation that costs Rs. 5 lakhs today.

Go ahead and download the SIP calculator. Happy investing.

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