Compounding & SIP Calculator Methodology
This document outlines the underlying mathematics, compounding timing assumptions, annual step-up algorithms, inflation adjustment formulas, and verification standards used across Eternity Empire's compounding engines.
1. Timing of Cash Flows: Annuity Due Convention
In retail mutual fund Systematic Investment Plans (SIPs), automated bank mandates typically debit on a specified date at the start of each month. Therefore, our calculator models contributions using the Annuity Due convention, where each monthly installment earns return starting in the month of contribution rather than at month-end.
2. Annual Step-Up Simulation Logic
When the user specifies an annual step-up percentage (e.g. 10%), the monthly installment remains flat for 12 months, and then multiplies by (1 + Step-Up %) at the start of Year 2, continuing iteratively for the remaining years.
3. Inflation Discounting: Real Purchasing Power
Nominal future values are converted into real purchasing power using constant compound inflation discounting:
4. Quality Assurance & Reference Verification
Our calculation outputs are verified against reference test spreadsheets across 10 known milestone cases (e.g., ₹10,000 for 10 years at 12% yielding ₹23,23,391). Calculations are executed in standard 64-bit IEEE floating point arithmetic and rounded to the nearest integer currency unit for clean presentation.
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