How it's calculated
Each monthly instalment is assumed to be invested at the start of the month and to compound at the monthly equivalent of your annual return. The future value is the sum of every instalment grown with compound interest — this is the standard SIP projection formula.
M = monthly investment · r = annual return ÷ 12 ÷ 100 · n = months
Worked example: investing $500/month for 10 years at 12% annual return (r = 0.01, n = 120) projects to about $116,170 — $60,000 invested plus roughly $56,170 of compounding gains. Stretch it to 20 years and the projection approaches $500,000, because compounding accelerates with time.
Introduction
A SIP — Systematic Investment Plan — is a disciplined way to invest in mutual funds: you contribute a fixed amount every month, and each installment buys units at the prevailing price. When markets dip, your fixed contribution buys more units; when they rise, it buys fewer. This automatic 'rupee-cost averaging' removes the need to time the market — a game even professionals lose consistently — and replaces one big timing decision with a habit. SIPs are the default retail investing vehicle in India, but the same mechanics power 401(k) contributions and dollar-cost averaging everywhere else.
Growth follows the annuity formula: FV = M x (((1+i)^n - 1) / i) x (1+i), where M is the monthly investment, i the monthly return, and n the number of months. The formula assumes a constant return, which real markets never deliver — treat the projection as an illustration of compounding's power, not a promise of results. Equity returns are lumpy: a 12 percent average might mean +30 one year and -15 the next. The genuine lesson of the SIP is behavioral, not mathematical: small, regular, long-term contributions beat large, irregular, short-term ones almost every time, because the habit survives market panics that destroy timing strategies. Start with what you can sustain, increase the amount annually as income grows (a 'step-up SIP'), and never stop contributions during a crash — those are the months buying the cheapest units.
Worked examples
Rs 10,000 a month at 12% for 10 years
Monthly rate i = 0.12/12 = 0.01, n = 120 months. FV = 10,000 x ((1.01^120 - 1) / 0.01) x 1.01 = Rs 23,23,391. You invest 10,000 x 120 = Rs 12,00,000; compounding contributes the other Rs 11,23,391 — nearly half the final value comes from growth, not contributions. Cross-check the scale: 1.01^120 = 3.30, so each rupee invested on day one roughly triples; later contributions triple less because they have less time, which is why the total is 1.94x contributions rather than 3x.
The cost of waiting 5 years
Start the same Rs 10,000 monthly SIP 5 years later, investing for only 5 years (n = 60): FV = 10,000 x ((1.01^60 - 1) / 0.01) x 1.01 = Rs 8,24,864. You contribute half as much (Rs 6,00,000 vs Rs 12,00,000) but end with barely a third of the wealth (8.25 lakh vs 23.23 lakh). The missing Rs 14,98,527 is the price of five years' delay — the lost early years are the most valuable ones in compounding because they get multiplied the most times. This is why 'I'll start investing when I earn more' is usually the most expensive sentence in personal finance.
References
Frequently asked questions
What is a SIP?
A Systematic Investment Plan (SIP) is a way to invest a fixed amount regularly — usually monthly — into mutual funds or other investments. It builds wealth through disciplined investing and cost averaging, which smooths out market ups and downs.
How does compounding work in a SIP?
Each monthly instalment starts earning returns from the month it is invested, and those returns themselves earn returns in later months. Over years this compounding snowballs: in a 10-year SIP, the gains in the final years often exceed the entire first year's contributions.
Are SIP returns guaranteed?
No. SIPs invest in market-linked instruments, so returns vary with the market and can be negative in some years. The calculator projects growth at a constant assumed rate for illustration — actual results will differ. Longer horizons have historically smoothed out volatility.
What return assumption should I use?
Many planners use 10–12% per year for long-term equity SIPs as an illustration, 8% for balanced funds and 6–7% for debt-oriented ones. These are not predictions — try a conservative and an optimistic rate to see the range of possible outcomes.
Disclaimer: Our calculators are for education and planning only. Projections are estimates based on a constant assumed return — they are not financial advice and not a prediction of actual market performance. Investing involves risk, including loss of principal. Consult a licensed financial adviser before investing.
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