Calculation Methodology & Assumptions

Mathematical conventions, compounding intervals, and taxation standards behind our engines.

MoneyInFuture calculations are built on standardized personal finance algorithms. To ensure full mathematical transparency, this page outlines the formulas and parameters utilized in our calculations.

1. Systematic Investment Plan (SIP)

Calculated as an **Annuity Due**, meaning payments are made at the beginning of each compounding period. Returns represent compounding interest on a monthly basis.

FV=P×(1+i)m−1i×(1+i)FV = P \times \frac{(1 + i)^m - 1}{i} \times (1 + i)
  • P: Monthly installment amount.
  • i: Equivalent monthly rate, derived geometrically from the annual expected rate (r): i = (1 + r)^(1/12) - 1.
  • m: Total compounding periods (tenure in years multiplied by 12).

2. Systematic Withdrawal Plan (SWP)

Calculations assume that the monthly withdrawal occurs at the **beginning** of each month. The remaining balance compounds until the end of the month.

Bn=(Bn−1−W)×(1+i)B_n = (B_{n-1} - W) \times (1 + i)
  • B_n: Ending balance of the n-th month.
  • B_n-1: Starting balance of the month.
  • W: Monthly withdrawal amount.
  • i: Monthly interest rate: (1 + CAGR)^(1/12) - 1.

3. Equated Monthly Installment (EMI)

Computed using the **Reducing Balance Method**, where the monthly interest payment is calculated on the outstanding principal balance at the beginning of that month.

EMI=P×r×(1+r)n(1+r)n−1EMI = P \times r \times \frac{(1 + r)^n}{(1 + r)^n - 1}
  • P: Loan principal amount.
  • r: Monthly interest rate (annual interest rate / 12 / 100).
  • n: Loan tenure in months.

4. Key Platform Parameters

Assumption ParameterDefault ValueRationale
Default Inflation6.0%Matches India's historical CPI inflation average (5-7%).
Equity LTCG Tax12.5%Indian Union Budget rate, with first ₹1.25L of gains exempt.
Equity STCG Tax20.0%Flat tax on equity gains held for under 12 months.
Compounding FrequencyMonthlyMatches the recurring deposit cycles of retail mutual fund SIPs.