SIP Calculator with Inflation

Monthly Investment
₹
Expected Return Rate (p.a)
%
Inflation Rate (p.a)
%
Time Period
Years
Invested Amount: ₹6,00,000 Six Lakh
Est. Returns: ₹5,61,695 Five Lakh Sixty One Thousand Six Hundred Ninety Five
Total Value: ₹11,61,695 Eleven Lakh Sixty One Thousand Six Hundred Ninety Five
Inflation Adjusted Value: ₹0 Zero

SIP Calculator with Inflation: A More Accurate Way to Plan Your Investments

When planning for the future, it's important to factor in the potential impact of inflation on your financial goals. While SIPs (Systematic Investment Plans) are a great tool for building wealth over time, inflation can significantly reduce the real value of your investments in the long run. To ensure you’re on track to meet your financial objectives, it’s essential to account for inflation, which is where an SIP calculator with inflation adjustment becomes invaluable.

In this article, we will walk through an example of how an SIP calculator works with and without inflation to show the real impact inflation has on your investment outcome.

Understanding SIPs and Inflation

Before diving into the calculations, let’s quickly define the key concepts:

  • SIP (Systematic Investment Plan): This is a method of investing a fixed sum of money regularly (monthly, quarterly, etc.) in mutual funds. It allows you to benefit from rupee cost averaging and the power of compounding over time.
  • Inflation: Inflation refers to the general rise in prices over time, which reduces the purchasing power of money. This means that in the future, the same amount of money may buy less than it does today. If you don’t account for inflation, you may not have enough funds to meet your future goals.

The SIP Calculation Example:

Let’s look at an example where you invest ₹10,000 every month in a mutual fund through an SIP for 10 years. We’ll compare the result with and without inflation.

  • Monthly Investment: ₹10,000
  • Expected Returns: 12% per annum
  • Inflation Rate: 5% per annum
  • Investment Duration: 10 years

SIP Without Inflation Adjustment:

If you invest ₹10,000 every month at an annual return of 12% for 10 years, without factoring in inflation, the future value of your investment would be:

  • Total Investment: ₹10,000 x 12 months x 10 years = ₹12,00,000
  • Value at the end of 10 years (Without Inflation Adjustment): ₹23,23,391

This means that after 10 years, your ₹12,00,000 investment will grow to ₹23,23,391 based on the 12% returns, and this is the value in today's terms.

SIP with Inflation Adjustment:

Now, let's factor in the impact of inflation. If inflation is 5% per annum, the purchasing power of your ₹23,23,391 in 10 years will be less than what it is worth today. To adjust for inflation, we calculate the future value of your goal after inflation is taken into account.

  • Inflation-Adjusted Value: ₹14,26,360

This means that, while the nominal value of your investment is ₹23,23,391 after 10 years, the real value, considering 5% inflation, would be equivalent to only ₹14,26,360 in today's terms. This highlights how inflation can erode the actual value of your returns.

How to Use the SIP Calculator with Inflation

  1. Monthly Investment
    Enter the amount you plan to invest every month in the SIP. For example, ₹5000.
  2. Expected Return Rate (p.a.)
    Enter the expected annual return rate for your investment. For instance, 12%.
  3. Inflation Rate (p.a.)
    Enter the expected inflation rate. For example, 6%. This factor adjusts the future value of your investment considering how inflation might erode purchasing power over time.
  4. Time Period
    Select the time period for your SIP. In this case, let's say 10 years.

After entering all the details, you will see the results instantly, showing the future value of your investment after adjusting for both returns and inflation.

Beating Inflation with Step-Up SIPs

To overcome the impact of inflation on your future goals, you may need to consider increasing your SIP amount periodically. One effective way to do this is by using a Step-Up SIP , where you increase your monthly SIP amount by a certain percentage every year. For example, if you start with ₹10,000 a month and increase it by 10% each year, your SIP contributions will grow over time, helping you keep up with inflation and increasing your corpus at a faster rate.

For instance, if you invest ₹10,000 in the first year, the following year, you would invest ₹11,000, and the next year ₹12,100, and so on. This helps counter the effect of inflation because as the cost of living increases, your SIP contributions grow at a similar pace, keeping the real value of your future corpus higher. You can use a Step-Up SIP Calculator to estimate how much your contributions should increase annually to meet your desired financial goals, factoring in both inflation and expected returns.

Disclaimer: This tool is provided for informational purposes only and does not guarantee the accuracy or performance of any investment calculations. Mutual fund investments are subject to market risks, and past performance is not indicative of future results. The information generated by this tool should not be construed as financial advice. Please read all scheme-related documents carefully before making any investments.

FAQs

The SIP Calculator with Inflation takes into account the expected return rate on your SIP as well as the effect of inflation on the future value of your investment. It helps estimate the value of your investment in today’s terms, factoring in inflation over time.
Yes, the calculator adjusts your expected returns based on the inflation rate. This gives you a more accurate estimate of the purchasing power of your future returns, accounting for inflation over your investment period.
A Systematic Investment Plan (SIP) allows you to invest a fixed amount regularly in mutual funds, helping you build wealth over time. It encourages disciplined investing and takes advantage of rupee cost averaging.
Inflation erodes the purchasing power of money, meaning that the returns you earn from your SIP may not have the same value in the future as they do today. The SIP calculator with inflation helps you understand the impact of inflation on your future returns.
Typically, inflation is assumed to be around 6% to 7% per year in India, though this can vary. It’s important to use a realistic inflation rate based on your location and the current economic situation to get a more accurate estimate of future returns.
To protect your SIP investment from inflation, consider investing in equity-based mutual funds or inflation-linked bonds. These assets tend to outpace inflation over the long term and help preserve your purchasing power.
Yes, SIPs in equity mutual funds have historically outperformed inflation over the long term. However, equity investments come with higher risk and volatility, so it's important to assess your risk tolerance before investing.
Accounting for inflation in your SIP calculations helps you get a clearer picture of the real value of your returns. It allows you to plan more effectively and adjust your investments to ensure that they meet your long-term financial goals despite inflationary pressures.