SIP calculator- Calculate your savings with Direct Mutual Funds

Tuesday, February 02, 2016 Swati Aggarwal 0 Comments



SIP Calculator- Calculate Your Savings With Direct Mutual Funds


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: Oro Wealth
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. 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

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