# In Terms Of An Excel Formula What Is A Constant How to Calculate Returns for a Systematic Investment Plan?

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## How to Calculate Returns for a Systematic Investment Plan?

A systematic investment plan, defined by various investment experts, is an investment vehicle that allows investors to pay equal amounts at regular intervals into a mutual fund scheme of their choice. This is quite similar to the recurring deposit schemes offered by banks; the only difference is the rate of return. While recurring deposits have a fixed rate of return, say close to 9%, SIP returns can vary from 10% to 35% and more.

Calculating SIP returns is a tedious task. But MS Excel is a convenient solution for users who want to know what they will get at the end of the investment period. To calculate your SIP earnings, start by entering an amount of \$100 from lines 1 to 12. As the cost of buying a SIP varies (due to fluctuations in the cost price), the number of units allotted will change accordingly. So you get a different value each time under ‘Market Value’. The sum of all the market values ​​(= NAV * number of units) is the final amount you will get at the end of the SIP plan.

SIP takes the time value of money into account when calculating. Money tends to lose its value over a period of time due to rising inflation. So, to know how SIP fares better than other investment alternatives, you can compare their IRRs. To understand IRR, let’s first understand NPV.

NPV stands for Net Present Value. NPV tends to decrease at the same pace as inflation. It is believed that the NPV may reach zero over time. So, the rate at which the NPV becomes zero is the IRR.

The formula for calculating SIP income is something like this:

NPV = investment cash flow NPVCash Flow / (DR +1)^n

NPV = net present value

Cash flow = monetary value of an investment alternative

DR = discount rate (mostly inflation rate)

n = no. of years

The return on SIP investment is calculated using the IRR function. If you compare the IRR of Recurring Deposit with constant return to that of SIP, you will find that the IRR of SIP is lower than that of RD. Therefore, SIP returns for a given period are mostly higher than RD.

SIP has higher returns than fixed and recurring deposits. But it is subject to various loads and market risks. However, if market risk is a concern, an investor can opt for a variety of SIP plans that invest more in debt markets than market-linked stocks. So, if you want to enjoy the benefits of volatility in the markets without taking too much risk, you can opt for SIP instead of company shares for investments.

In conclusion, if you are ready to take calculated risk, you must choose systematic investment plans. All fund houses offer SIP return calculators to determine how much money you will earn from your savings.

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