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SIP illustration based on Different Amount, Time and Return Assumption.

    Percentage   (Amount in Rs after SIP Time Period)
Monthly SIP Amount Returns 20 years 15 years 10years 5years 3years
    9% 643,456 369,281 191,086 75,271 41,230
Rs 1000 per month 12% 919,858 475,931 224,036 81,104 43,079
    15% 1,327,073 616,366 263,018 87,342 44,983
    20% 2,476,194 955,960 344,311 98,704 48,280
    9% 1,930,368 1,107,843 573,258 225,814 123,689
Rs 3000 per month 12% 2,759,572 1,427,794 672,108 243,311 129,238
    15% 3,981,220 1,849,097 789,055 262,026 134,950
    20% 7,428,582 2,866,380 1,032,933 296,112 144,841
    9% 3,217,281 1,846,405 955,430 376,357 206,148
Rs 5000 per month 12% 4,599,287 2,379,657 1,120,179 405,518 215,396
    15% 6,635,367 3,081,828 1,315,091 436,710 224,917
    20% 12,380,967 4,777,300 1,721,555 493,520 241,401
    9% 6,434,561 3,692,810 1,910,860 752,715 412,296
Rs 10000per month 12% 9,198,574 4,759,314 2,240,359 811,036 430,793
    15% 13,270,734 6,163,656 2,630,182 873,421 449,834
    20% 24,761,940 9,554,599 3,443,110 987,040 482,803

Source: Kotak SIP O Meter

10 Calculations to understand the the worth of an Investment


To arrive at a result, calculations can be done in a different way or by using a different formula.

Even the same formula can be used differently to arrive at a certain result. Here are a few commonly used money management formulas.

Use an excel sheet to do these .


1. Compound Interest


XVZ   wants to take a loan of Rs 1 lakh to buy a used car. How much will the car cost me at an annual interest rate of 8 per cent for four years?

The compound interest formula can be used here to calculate the final cost, which would include the loan amount and the interest paid. The amount that is actually paid for Rs 1 lakh is Rs 1,36,048.90. The total amount of interest charged for borrowing Rs 1 lakh is Rs 36,048.90.

Formula: Future value = P(1 + R)^N

Type in: =100000(1+8%)^4 and hit enter. P: amount borrowed; R: rate of interest; N: time in years.

Also used for: Calculating the maturity value on lumpsum investment (bank fixed deposits and National Savings Certificate, for example) over a fixed period at a certain rate of interest.


2. Compound Annualised Growth Rate

 XYZ had invested Rs 1 lakh in a mutual fund five years back at an NAV of Rs 20. Now the NAV is Rs 70. How should I calculate my returns on an annual basis?

Compound annualised growth rate (CAGR) will be used here to calculate the growth over a period of time. The gain of Rs 50 over five years on the initial NAV of Rs 20 is a simple return of 250 per cent (50/20 * 100). However, it should not be construed as 50 per cent average return over five years.

Formula: CAGR = {[(M/I)^(1/N)] - 1} * 100

Type in: =(((70/20)^(1/5))-1)*100 and hit enter. M: maturity value; I: initial value; N: time in years. CAGR here is 28.47%.

Also used for: Calculating the annualised returns on a lumpsum investment in shares.


3. Internal Rate of Return


DP paid Rs 18,572 every year on a moneyback insurance policy bought 20 years back. Every fifth year, he received Rs 40,000 back and Rs 4.5 lakh on maturity. What was DP's rate of return?

The internal rate of return (IRR) has to be calculated here. It is the interest rate accrued on an investment that has outflows and inflows at the same regular periods.

In the excel page type Rs 18,572 as a negative figure (-18572), as it is an outflow, in the first cell. Paste the same figure till the twentieth cell.

Then, as every fifth year has an inflow of Rs 40,000, type in Rs 21,428 (40,000-18,572) in every fifth cell. In the twentieth cell, type in 18572. In the twenty first cell, type in Rs 4,50,000, which is the maturity value of the policy.

Then click on the cell below it and type: = IRR(A1:A21) and hit enter.

5.28% will show in the cell. This is your internal rate of return.

Also used for: Calculating returns on insurance endowment policies.




Dev bought 500 shares on 1 January 2007 at Rs 220, 100 shares on 10 January at Rs 185 and 50 shares at Rs 165 on 18 May 2008. On 21 June 2008, I sold off all the 650 shares at Rs 655. What is the return on my investment?

XIRR is used to determine the IRR when the outflows and inflows are at different periods. Calculation is similar to IRR's. Transaction date is mentioned on the left of the transaction.

In an excel sheet type out the data from the top most cell as shown here. Outflows figures are in negative and inflows in positive. In the cell below with the figure 4,25,750, type out

=XIRR (B1:B4,A1:A4)*100

Hit enter. The cell will show 122.95%, the total return on investment.

Also used for: Calculating MF returns, especially SIP, or that for unit-linked insurance plans.


5. Post-Tax Return


My father wants a bank FD at 10 per cent return for five years. He pays income tax. What will be the returns?

The post-tax return has to be calculated here. The idea is to know the final returns on a fully taxable income. Interest income from the bank is taxed as per your tax slab.

Formula: ROI  - (ROI * TR)=Post-tax return

Type in: =10 - (10 * 30.9%) and hit enter. You will get 6.91%

ROI: rate of interest; TR: tax rate (depends on tax slab)

Also used for: Calculating post-tax returns of national savings certificates, post-office time deposits, and Senior Citizens' Savings Scheme.


6. Pre-Tax Yield


My brother says that the investment in public provident fund (PPF), which gives 8 per cent, is the best. Isn't 8 per cent a low rate of return?

An investment's pre-tax yield tells us if its return is high or low. The return on PPF (8 per cent) is tax-free. Also, this has to compared with returns of a taxable income to estimate its worth. For someone paying a tax of 30.9 per cent, the pre-tax yield in PPF is 11.57 per cent. At present, there is no fixed, safe and assured-return option that has 11.57 per cent return and a post-tax return comparable to PPF's 8 per cent.

Formula: Pre-tax yield = ROI / (100-TR)*100

Type in: =8/(100-30.9)*100 and hit enter. You will get 11.57%. ROI: rate of interest, TR: tax rate, (depends on tax slab)

Also used for: Calculating the yield on an Employees' Provident Fund or any other tax-free instrument.


7. Inflation


M y family's monthly expense is Rs 50,000. At an inflation rate of 5 per cent, how much will I need 20 years hence with the same expenses?

The required amount can be calculated using the standard future value formula. Inflation means that over a period of time, you need more money to fund the same expense.

Formula: Required amt.=Present amt. *(1+inflation) ^no. of years

Type in: =50000*(1+5% or .05)^20 and hit enter. You will get Rs 1,32,664 as the answer, which is the required amount.

Also used for: Calculating maturity value on an investment.


8. Purchasing Power


M y family's monthly expense is Rs 50,000. At an inflation rate of 5 per cent, how much will be the purchasing value of that amount after 20 years?

Inflation increases the amount you need to spend to fetch the same article and in a way reduces the purchasing power of the rupee. Here, Rs 50,000 after 20 years at an inflation of 5 per cent will be able to buy goods worth Rs 18,844 only.

Formula: Reduced amt.= Present amt. / (1 + inflation) ^no. of yrs

Type in: =50000/(1+5%)^20 and hit enter. You will get Rs 18,844, which is the reduced amount


9. Real Rate of Return


M y father wants to make a one-year bank FD at 9 per cent. On maturity, he says, the capital will be preserved and he would get assured return on it.

It is true that fixed deposit is safe and gives assured returns. However, after adjusting for inflation, the real rate of return can be negative.

Formula: Real rate of return=[(1+ROR)/(1+i)-1]*100

Type in: =((1+9%)/(1+11%)-1)*100 and hit enter. -1.8% is the real rate of return. ROR: Rate of return per annum; i: rate of inflation (11 per cent here).


10. Doubling, Tripling of Money


I can get 12 per cent return on my equity investments. In how many years can I double or even triple my money?

Formula: No. of years to double = 72/expected return

Type in: =72/12 and hit enter. You will get 6 years. For tripling, type in: =114/12 and hit enter. You will get 9.5 years. For quadrupling, type in: =144/12 and hit enter to get 12 years.


11. Decoding Risk Ratio:Standard Deviation

Standard Deviation (σ) The volatility risk of a mutual fund scheme is measured by ‘Standard Deviation’ (SD). A Higher SD number indicates that the net asset value (NAV) of the scheme is more volatile and it is riskier than a fund with a lower SD. Standard deviation as a standalone number does not help in drawing any conclusion. It is best to compare it either with the Standard deviation of the benchmark or its peers. A fund generating higher returns may not always be better than its peers. The returns are looked at, in tandem with the extra risk (standard deviation) that the fund takes to generate those returns.


12. Decoding Risk Ratio:Beta

Beta (β) is a measure of the volatility of a security or a portfolio in comparison to the benchmark. Beta can be described as the tendency of a security to respond to swings in the market. The higher the beta, the more sharply the value of the investment can be expected to fluctuate (in either direction) with relation to a market index. There are various interpretations for Beta (β): If Value of Beta (β), Interpretation β > 1 Fund moves in the same direction, but more than the movement of the benchmark (e.g β= 2.5) β = 1 Fund moves in the same direction, about the same amount as the movement of the benchmark 0 < β < 1 Fund moves in the same direction, but less than the movement of the benchmark (e.g β= 0.5) β = 0 Movement of the fund is uncorrelated with the movement of the benchmark β < 0 Fund moves in the opposite direction as compared to the index (e.g β = - 1.5)


13. Decoding Risk Ratio:Alpha

Alpha (α) Alpha is the excess return of a fund over its benchmark index. It is a common measure of assessing a fund manager's performance as it highlights the “extra” returns over the benchmark. A positive alpha means the fund has outperformed its benchmark index whereas, a negative alpha would indicate an underperformance