SIP Return Calculation Explained

What people mean by “SIP return”

Colloquially, investors ask: “If I put Rs X monthly for Y years, what will I get?” Calculators answer with a projected future value under an assumed annual rate. That projection is not a contractual payout from a SEBON-regulated mutual fund.

Actual account value equals units × live NAV (adjusted for corporate actions and fees as applicable). Your personal rate of return depends on the path of NAVs across every purchase date and any redemptions.

The standard future-value sketch

Many SIP calculators use a future-value-of-annuity style formula with monthly rate i = annual rate / 12 / 100, number of months n, and installment P. The formula assumes a constant rate every period — a teaching simplification markets do not obey.

Example inputs: P = Rs 5,000, years = 10 (n = 120), assumed annual rate = 10%. Total invested = Rs 600,000. Projected FV under the constant-rate model will exceed Rs 600,000; change the rate to 8% or 12% and the FV changes materially. Those gaps show sensitivity, not destiny.

Illustrative annual assumptions such as 8–12% are estimates for education. They are not forecasts, SEBON endorsements, or fund guarantees.

Why constant-rate math differs from real NAVs

Markets move irregularly. You might buy during a multi-month decline, then hold through a recovery — or the reverse. Two investors with identical SIP amounts and durations can experience different personal returns if their start dates differ.

Fees and taxes further separate gross market moves from what you keep. Always read scheme expense information rather than assuming calculator outputs are net of everything.

Thinking in XIRR terms (conceptually)

When cash flows are a series of monthly investments plus a final redemption value, a personal rate of return is often discussed using an internal-rate-of-return style measure (commonly associated with XIRR in spreadsheets). You do not need the spreadsheet details to grasp the idea: it finds a rate that links all your NPR outflows and the final inflow.

If you redeem early after a downturn, your realized XIRR may be negative even if long-term averages elsewhere look fine. Horizon and behavior dominate calculator daydreams.

Inflation and “real” purchasing power

A projected corpus of Rs 2,000,000 in 15 years buys less than Rs 2,000,000 today if consumer prices rise. Some planners subtract an inflation assumption to discuss real value. Inflation in Nepal fluctuates; any single percentage is another estimate.

Compare nominal calculator output with a rough inflation-adjusted view so retirement or education goals stay honest about purchasing power.

Worked sensitivity table (teaching only)

Consider Rs 10,000 monthly for 20 years (total invested Rs 2,400,000). Under a constant-rate model, an 8% assumption, a 10% assumption, and a 12% assumption produce three different projected endings — sometimes differing by large NPR amounts. That spread is the point: small rate changes compound into large outcome changes over decades.

Do not pick the highest illustration because it feels motivating. Prefer planning that still works nearer the lower end of your assumption band.

• Total invested is factual once contributions are made.
• Projected profit is assumption-driven until realized on redemption.
• Short windows can show losses even if long-run averages are positive elsewhere.

Calculate with transparent inputs

Enter your installment, tenure, and a clearly labeled assumed return in the SIP return calculator. Adjust the rate up and down to see NPR sensitivity, and remember the engine cannot know future NAVs of any Nepali mutual fund.