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SIP Calculator vs. Reality: Why Your Rs 1 Crore Projection Might Be Misleading
- •SIP calculators provide attractive projections, but the assumed 12% annual return is often unrealistic for equity mutual funds, which do not guarantee returns.
- •Actual returns vary significantly based on market behavior; a calculator's single annual rate fails to capture market volatility and the impact of buying units at different prices.
- •Factors like varying starting dates, market conditions, fund expenses (TER), and taxes can significantly alter the final corpus compared to a calculator's simple projection.
- •Inflation erodes purchasing power; Rs 1 crore in 20 years will have significantly less value than today, a crucial factor often overlooked by calculators.
- •SIP calculators are useful for comparing scenarios but should not be treated as forecasts; investors should use multiple return assumptions and adjust for inflation to set realistic financial goals.
Key Questions Answered
Calculators assume a steady annual return, but equity markets fluctuate and mutual funds do not offer assured returns. Additionally, factors like expense ratios, taxes, and inflation mean the final corpus will likely differ from the projected headline figure.
Inflation significantly erodes purchasing power over time. At an assumed 6 percent annual inflation rate, a corpus of Rs 1 crore after 20 years would have a purchasing power of only around Rs 31 lakh in today's terms.
The projected value decreases significantly when a lower annual return is applied to the exact same investment amount. For instance, a monthly SIP of Rs 10,000 for 20 years yields roughly Rs 99 lakh at 12 percent, but drops to about Rs 76 lakh at 10 percent and near Rs 59 lakh at 8 percent.
