See what your SIP's final value is really worth, after taking inflation into account.
A real rate of return is calculated using the Fisher equation.
That real rate is used to project the SIP's value in today's purchasing power.
Real rate: (1 + nominal rate) ÷ (1 + inflation) − 1
An inflation-adjusted SIP calculator shows two versions of the same SIP result: the nominal rupee figure you would see in your account statement, and a figure expressed at today's purchasing power. The gap between them is what rising prices take away over the years.
In India, retail inflation has usually been several percent a year, so a corpus that looks large twenty years out may buy far less than the number suggests. This calculator is used by people planning long goals such as retirement, who want to know whether their SIP will really be enough in terms of what it can buy.
It also reports the real rate of return, which is the growth left after inflation is removed.
1. Note the monthly SIP P, the expected annual return R%, the period N years and the expected inflation π%.
2. Compute the nominal maturity value with the SIP formula: FV = P × [((1 + i)ⁿ − 1) ÷ i] × (1 + i), with i = R ÷ 1200 and n = 12N.
3. Compute the real annual rate with the Fisher equation: real = (1 + R ÷ 100) ÷ (1 + π ÷ 100) − 1.
4. Put the real rate into the same SIP formula, using a monthly rate of real ÷ 12, to get the value at today's prices.
5. Compare the two values. The difference is the loss of purchasing power over N years.
6. For a stricter check on a SIP that never increases, you can also divide the nominal FV by (1 + π ÷ 100)ᴺ.
If money grows by R and prices grow by π, the quantity of goods your money can buy grows by (1 + R) ÷ (1 + π). Subtracting π from R is only an approximation, and it overstates the real return, more so at higher rates. At 12% return and 6% inflation, the subtraction gives 6%, while the exact real rate is 1.12 ÷ 1.06 − 1, about 5.66%. Over 15 or 20 years of compounding, that third of a percentage point makes a visible difference to the corpus.
Running the SIP formula at the real rate measures every instalment at today's prices. That matches a SIP whose rupee amount rises each year roughly in line with inflation, so its real size stays constant. If your SIP stays at the same rupee amount for all the years, each later instalment is worth a little less in real terms, and the stricter figure is the nominal value divided by (1 + π)ᴺ. That stricter figure is lower than the one shown here. Treat the calculator's real value as the upper end and the stricter division as the lower end.
General consumer inflation and your personal inflation can differ a lot. A retiree's costs lean towards healthcare and food, while a young family's lean towards school fees and rent, and these categories have often risen faster than the headline index. For long goals it is sensible to try a range, for example 5%, 6% and 7%, and look at how much the real value moves. The what-if slider on the page is built for exactly this.
Suresh, 35, invests ₹15,000 a month for retirement, expects 11% a year for 20 years and wants to see the result at today's prices if prices rise 5% a year.
Answer: Maturity value (today's purchasing power) ₹67,32,654; Maturity value (nominal, uncorrected) ₹1,31,03,596; Real rate of return 5.71%
Planning a goal against the nominal figure and discovering too late that it buys much less.
Subtracting inflation from the return instead of dividing, which overstates the real rate.
Using a very low inflation figure because recent months were calm, for a goal decades away.
Assuming the real value applies to a SIP you never increase; a flat SIP loses a little more purchasing power than the real-rate projection shows.
Forgetting that tax on gains also reduces what you can spend, on top of inflation.
Checking whether a retirement SIP will support today's lifestyle in future prices.
Deciding whether to add a step-up to keep a SIP's real size steady.
Explaining to a first-time investor why a crore twenty years from now is not a crore today.
Comparing goal plans under different inflation assumptions.
Why is the inflation-adjusted value lower than the nominal value?
The normal figure is the actual rupee amount you will get in the future. But inflation reduces what that money can buy. The inflation-adjusted figure shows what that amount is really worth in today's money.