POSTED BY July 23, 2012 9:04 pm ONE COMMENT

ONComparing

1) http://www.investmentyogi.com/sip-return-calculator.aspx and

2) http://www.indiainfoline.com/Personalfinance/calculators/MutualFunds/Systematic-Investment-Plan-Returns.aspx

With the same inputs: 40,000 monthly, 18 years or 216 months and 15% CAGR, each of them are giving different outputs. What can be a possible explanation behind this? The first one returns 388.4 lakhs and the second one returns 441 lakhs! Not even close. Is the first one after tax deductions?

How are tax deductions calculated on SIP?

I can explain the 441 lac one .. This one is calculated assuming “montly compounding” . So

Amount (A) = 40000 per month

Rate (R) = 15/12 = 1.25% per month

Tenure (T) = 216

Now if you apply formula A * (1+R) * ((1+R)^T -1)/R , you will get 441 lacs . Now the (1+R) was multiplied in this formula as extra , because the assumption was that the payments are made in the start of tenure, if the payments are made at the end of the tenure (like end of year or month) , then the formula is A * ((1+R)^T -1 )/R

The first one which is giving 388 lacs might be calculated with assumption of yearly compounding and assuming “end of tenure” payment , but still I am just getting 364 lacs only . Any ways just understand that the right way you should look at is yearly compounded and in the start of the tenure . so the actual right figure can be 416 lacs , do it yourself , you will get it , use excel

Manish