How SIP Returns Work
Small, regular investments compound faster than the monthly amount suggests.
What a SIP Actually Does
A Systematic Investment Plan (SIP) invests a fixed amount into a mutual fund at regular intervals, usually monthly, instead of investing a lump sum once. The future value of a SIP isn't a simple multiplication of monthly amount by number of months — each individual month's investment compounds for a different length of time, since money invested in month 1 has longer to grow than money invested in month 40.
Future Value = P × [((1 + i)n − 1) ÷ i] × (1 + i)
Where P is the monthly investment, i is the monthly rate of return (annual rate ÷ 12 ÷ 100), and n is the number of months invested.
Worked Example
Investing ₹5,000 every month for 5 years (60 months) at an expected 12% annual return:
Total invested = ₹5,000 × 60 = ₹3,00,000
Future value ≈ ₹4,12,432
Estimated gain ≈ ₹1,12,432 — more than a third of the total invested amount, even though no single month's contribution changed. The gain comes entirely from time and compounding, not from investing more money.
Why Starting Earlier Matters More Than Investing More
Because each month's contribution compounds for a different length of time, the earliest contributions do disproportionately more work. A ₹5,000 monthly SIP for 15 years accumulates far more than double what the same SIP for 7.5 years would, because the early years' contributions have compounded for much longer by the end. This is why "start earlier with a smaller amount" often outperforms "start later with a larger amount" for the same total years of saving discipline — time in the market compounds, delay doesn't.
What the Calculator Assumes — and What It Can't Predict
- The return rate is an assumption, not a guarantee. Mutual fund returns fluctuate year to year; the calculator applies one constant annual rate for illustration, but real returns vary and can be negative in some years.
- It doesn't account for expense ratios, exit loads, or taxes on gains, which reduce the actual amount you receive compared to the raw calculated figure.
- Rupee-cost averaging isn't modeled explicitly in this formula — in practice, buying fixed units of a fluctuating-price fund each month means you naturally buy more units when prices are low and fewer when high, which can smooth out volatility beyond what a single constant-rate formula captures.