SIP calculator – Calculate your savings with Direct Mutual Funds
SIP investing has become very popular and most SIPs are held for relatively long periods of time like 15-20 years
Over these long horizons, the choice between Regular and Direct Plans can really make a massive difference.
With some reasonable assumptions, after Year 10 an investor would have paid out more from your SIP in commissions, then what you are actually putting in!
To see how the difference in expense ratio between Regular Plans and Direct Plans translates into actual rupees in the case of SIPs consider the following example. This example has a few reasonable assumptions, but we later discuss how changing these assumptions would affect the results
Assumptions:
1. It is a monthly SIP i.e. where new investments are made every month;
2. Amount invested per month: 20,000;
3. Pre-cost returns of the fund: 10%;
4. Regular plan expense ratio: 2%;
5. Direct plan expense ratio: 1%.
6. So post-cost returns of the fund will be 8% and 9% for the Regular and Direct plans respectively. Also, we will assume that returns are
7. uniformly distributed in the year, so
8. Regular Plan returns are 8%/12 = 0.67% every month
9. Direct Plan returns are 9%/12 = 0.75% every month.
Table 1: SIP returns under direct and regular plans (20 years):
| Year | Month Number | Investment amount in Regular Plan | Investment amount in Direct Plan | Extra returns with Direct Plan (Rs) | Extra returns as a % of annual investment (2.4 lakhs) |
|---|---|---|---|---|---|
| Year1 | Month1 | 20,000 | 20,000 | – | – |
| . | Month2 | 20,000*(1+0.67%) + 20,000 = 40,133 | 20,000*(1+0.75%) + 20,000 = 40,150 | 17 | – |
| . | Month3 | 40,133*(1+0.67%) + 20,000 = 60,401 | 40,150*(1+0.75%) + 20,000 = 60,451 | 50 | – |
| . | Month4 | 80,804 | 101 | – | – |
| . | Month5 | 1,01,342 | 1,01,511 | 169 | – |
| . | Month6 | 1,22,018 | 1,22,273 | 255 | – |
| . | Month 7 | 1,42,831 | 1,43,190 | 358 | |
| . | Month 8 | 1,63,784 | 1,64,264 | 480 | |
| . | Month 9 | 1,84,875 | 1,85,496 | 620 | |
| . | Month 10 | 2,06,108 | 2,06,887 | 779 | |
| . | Month 11 | 2,27,482 | 2,28,438 | 956 | |
| . | Month 12 | 2,48,999 | 2,50,152 | 1,153 | 0% |
| Year 2 | Month 24 | 5,18,664 | 5,23,769 | 5,106 | 2% |
| Year 3 | Month 36 | 8,10,711 | 8,23,054 | 12,343 | 5% |
| Year 4 | Month 48 | 11,26,998 | 11,50,414 | 23,416 | 10% |
| Year 5 | Month 60 | 14,69,537 | 15,08,483 | 38,946 | 16% |
| Year 6 | Month 72 | 18,40,507 | 19,00,141 | 59,634 | 25% |
| Year 7 | Month 84 | 22,42,266 | 23,28,539 | 86,272 | 36% |
| Year 8 | Month 96 | 26,77,372 | 27,97,123 | 1,19,752 | 50% |
| Year 9 | Month 108 | 31,48,591 | 33,09,664 | 1,61,074 | 67% |
| Year 10 | Month 120 | 36,58,921 | 38,70,286 | 2,11,365 | 88% |
| Year 11 | Month 132 | 42,11,608 | 44,83,497 | 2,71,889 | 113% |
| Year 12 | Month 144 | 48,10,168 | 51,54,231 | 3,44,064 | 143% |
| Year 13 | Month 156 | 54,58,408 | 58,87,886 | 4,29,478 | 179% |
| Year 14 | Month 168 | 61,60,451 | 66,90,362 | 5,29,910 | 221% |
| Year 15 | Month 180 | 69,20,764 | 75,68,115 | 6,47,351 | 270% |
| Year 16 | Month 192 | 77,44,183 | 85,28,209 | 7,84,026 | 327% |
| Year 17 | Month 204 | 86,35,945 | 95,78,365 | 9,42,420 | 393% |
| Year 18 | Month 216 | 96,01,723 | 1,07,27,033 | 11,25,311 | 469% |
| Year 19 | Month 228 | 1,06,47,659 | 1,19,83,455 | 13,35,796 | 557% |
| Year 20 | Month 240 | 1,17,80,408 | 1,33,57,737 | 15,77,329 | 657% |
| Year | Month Number | Investment amount in Regular Plan | Investment amount in Direct Plan | Extra returns with Direct Plan (Rs) | Extra returns as a % of annual investment (2.4 lakhs) |
|---|---|---|---|---|---|
| Year 1 | Month 1 | 20,000 | 20,000 | – | |
| . | Month 2 | = 20,000*(1+0.67%) + 20,000 = 40,133 | = 20,000*(1+0.75%) + 20,000 = 40,150 | 17 | |
| . | Month 3 | = 40,133*(1+0.67%) + 20,000 = 60,401 | = 40,150*(1+0.75%) + 20,000 = 60,451 | 50 | |
| . | Month 4 | 80,804 | 80,905 | 101 | |
| . | Month 5 | 1,01,342 | 1,01,511 | 169 | |
| . | Month 6 | 1,22,018 | 1,22,273 | 255 | |
| . | Month 7 | 1,42,831 | 1,43,190 | 358 | |
| . | Month 8 | 1,63,784 | 1,64,264 | 480 | |
| . | Month 9 | 1,84,875 | 1,85,496 | 620 | |
| . | Month 10 | 2,06,108 | 2,06,887 | 779 | |
| . | Month 11 | 2,27,482 | 2,28,438 | 956 | |
| . | Month 12 | 2,48,999 | 2,50,152 | 1,153 | 0% |
| Year 2 | Month 24 | 5,18,664 | 5,23,769 | 5,106 | 2% |
| Year 3 | Month 36 | 8,10,711 | 8,23,054 | 12,343 | 5% |
| Year 4 | Month 48 | 11,26,998 | 11,50,414 | 23,416 | 10% |
| Year 5 | Month 60 | 14,69,537 | 15,08,483 | 38,946 | 16% |
| Year 6 | Month 72 | 18,40,507 | 19,00,141 | 59,634 | 25% |
| Year 7 | Month 84 | 22,42,266 | 23,28,539 | 86,272 | 36% |
| Year 8 | Month 96 | 26,77,372 | 27,97,123 | 1,19,752 | 50% |
| Year 9 | Month 108 | 31,48,591 | 33,09,664 | 1,61,074 | 67% |
| Year 10 | Month 120 | 36,58,921 | 38,70,286 | 2,11,365 | 88% |
| Year 11 | Month 132 | 42,11,608 | 44,83,497 | 2,71,889 | 113% |
| Year 12 | Month 144 | 48,10,168 | 51,54,231 | 3,44,064 | 143% |
| Year 13 | Month 156 | 54,58,408 | 58,87,886 | 4,29,478 | 179% |
| Year 14 | Month 168 | 61,60,451 | 66,90,362 | 5,29,910 | 221% |
| Year 15 | Month 180 | 69,20,764 | 75,68,115 | 6,47,351 | 270% |
| Year 16 | Month 192 | 77,44,183 | 85,28,209 | 7,84,026 | 327% |
| Year 17 | Month 204 | 86,35,945 | 95,78,365 | 9,42,420 | 393% |
| Year 18 | Month 216 | 96,01,723 | 1,07,27,033 | 11,25,311 | 469% |
| Year 19 | Month 228 | 1,06,47,659 | 1,19,83,455 | 13,35,796 | 557% |
| Year 20 | Month 240 | 1,17,80,408 | 1,33,57,737 | 15,77,329 | 657% |
Source: Orowealth
As you can see the extra returns that you make with Direct Plans keeps increasing over the years, because the extra costs of Regular Plans is applied over the total investment corpus. In fact from Year 11 onwards you are losing more money from your SIP on account of being in the Regular Plan than you are actually putting in every year!
How will these numbers change with assumptions?
1. Investment amount per month: If you are investing more per month, then you will also lose more in rupee terms on account of being in the Regular Plan. However, the percentage numbers will remain constant.
2. Pre-cost returns of the fund: We have taken a very conservative number of 10% here. If your assumption on pre-cost returns is higher, then the gap between Regular and Direct plans will increase further. This is because if investments can earn higher returns, then the fact that your agent is taking away a part of your investment amount will also hurt more.
3. The difference in Direct and Regular expense ratio: Rupee figures will increase/decrease if this gap is higher/lower. You can see the actual difference for different funds using the interactive graphic on our homepage: www.orowealth.com
Unknown
Posted at 16:29h, 06 MayGood explanation and awareness
Mueeid Khan
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Jignesh Shah
Posted at 06:01h, 02 AugustIt’s surprising but true, how using a small calculator tool can make so much of a difference on what type of mutual funds scheme you adopt. Simple input but an output that largely tells what’s the truth on what you are going to gain through a investment decisions, make the calculator ran all powerful tool, one that s a must for the serious-minded investor.