Calculator methodology

Compounding: effective annual or nominal

“12% a year” can mean two different things when it is turned into a monthly rate. Finacolada names the choice on each calculator.

• Effective annual (the default for SIP, SWP, FIRE and retirement). The monthly rate is (1.12)^1/12 − 1, about 0.949%. Twelve months at that rate compound to exactly 12%. For example, ₹25,000 a month for 10 years at 12% a year grows to about ₹56 lakh.
• Nominal, divided by twelve. The monthly rate is 12% ÷ 12 = 1%. Twelve months at 1% compound to about 12.68%, so the same “12%” gives a slightly higher result. This is the convention lenders use for loans, so loan calculators always use it.
• Deposits. Bank and post-office deposits use the stated rate with the scheme’s own compounding. An FD defaults to quarterly compounding. Post-office time deposits compound quarterly.

Timing of payments

SIP instalments and SWP withdrawals happen at the start of each month, and growth applies after them. Step-ups and inflation increases take effect every 12 months from the start. Loan EMIs are paid at the end of each month on the opening balance, which is how lenders schedule them.

Loans and amortisation

The EMI is the standard annuity formula: the loan amount times the monthly rate times (1 + rate) to the power of the number of months, divided by ((1 + rate) to the same power − 1). For ₹50 lakh at 8.5% over 240 months, the EMI is ₹43,391.

The EMI is rounded half up to the nearest rupee, as lenders do. The final instalment is adjusted by a few rupees so the loan closes exactly. Prepayments can reduce the tenure or the EMI. A preclosure charge is the outstanding balance times the charge percentage, plus any flat fee, with the tax you enter added on top.

Government schemes and rates

Scheme rules follow the published terms. The PPF calculator, for example, earns interest on the lowest balance between the 5th and the last day of each month and credits it at year end. Depositing ₹1.5 lakh each April at 7.1% for 15 years gives about ₹40.7 lakh.

Small-savings rates are set by the Ministry of Finance and notified every quarter, effective from 1 January, 1 April, 1 July and 1 October. The EPF interest rate is declared once a year by EPFO. Each group of rates in our data file carries its effective date, the date we last checked it and its sources. Where we could not open the official notification, the rates page says so. We update the file when a quarter’s notification is published, and we re-check it against the official source.

Some scheme rules are still open to interpretation. Where that happens, the calculator page names the point and the assumption it uses.

Monte Carlo bands and success rates

The FIRE Monte Carlo simulator does not forecast one future. It generates thousands of possible market histories, called paths, and runs your withdrawal plan through each one.

• Returns are drawn, not assumed. Each year, equity, debt and gold returns are sampled from lognormal distributions using the mean and volatility you set. The three asset returns are correlated with each other. Inflation is sampled separately, and each path has its own price index.
• Success rate. The share of paths where the corpus lasts through the planned horizon.
• Percentile bands. At each age, the 10th, 25th, 50th (median), 75th and 90th percentile balances are drawn as bands. A 10th-percentile line at age 75 means one path in ten ends up at or below that balance at that age.
• Reproducible. The random generator is seeded. The same inputs always give the same answer, so the result does not change each time you press a button.

The default assumptions are round planning figures: equity 12% a year with 18% volatility, debt 7% with 4%, gold 8% with 15%, and inflation 6% with 1.5% volatility. They are not verified statistics, and you should replace them with your own view. Indian market history is short, so we do not use it to set the defaults.

Withdrawals, SWP and FIRE

A systematic withdrawal plan (SWP) pays a fixed monthly amount from your corpus while the rest stays invested. The withdrawal can rise with inflation, rise by a set step each year or stay fixed. The calculator reports the month the money runs out, or that it lasts beyond the horizon.

The FIRE number is the corpus that, at your withdrawal rate, pays the expenses you expect in the year you retire. Today’s expenses are inflated to that year first. The Lean, Regular and Fat variants multiply expenses by 0.7, 1 and 1.5. These multipliers are conventions used on this site, not standard definitions. Coast FIRE is the amount you need invested today so that it grows to the target by a chosen age, with no further saving.

Rounding and number format

• Calculations keep full precision. Rounding happens only when a number is shown, with one exception: the EMI.
• Rupees use Indian digit grouping: ₹12,34,567. “L” means lakh (1,00,000) and “Cr” means crore (1,00,00,000).
• Percentages show up to one decimal place, with trailing zeros dropped: 7.10% appears as 7.1%.
• Chart axes use round steps such as 1, 2, 2.5 or 5 times a power of ten.

What the models do not cover

• Tax. Slabs, surcharge, TDS thresholds and deduction limits change with each budget. They appear as inputs or constants, and the calculator states which one it used.
• Costs and fees. Fund expense ratios, brokerage, exit loads and bank charges count only if you enter them.
• Certainty. Returns, inflation and rates are assumptions. Real outcomes can be better or worse, and the bands show a range, not a guarantee.
• Lender and bank terms. Your loan agreement, scheme terms and bank statement govern the real figures. Small differences can come from day-count and rounding rules that a generic calculator cannot see.

Found a mistake?

If a figure looks wrong, please tell us. Include the page address, the inputs you used and the source you compared against. You can reach us through the contact page.