Introduction
To calculate the returns of a Systematic Investment Plan, you cannot use the simple interest formula because investments are made in periodic installments. Instead, we use the Future Value (FV) formula or calculate internal rate of return (XIRR).
The SIP Formula
The standard formula used to project SIP maturity values is:
M = P × [ (1 + i)^n - 1 ] × (1 + i) / i
Where:
M = Maturity amount
P = Monthly investment amount
i = Monthly interest rate (Annual rate / 12 / 100)
n = Total number of monthly installments (Years × 12)