How SIP Returns Are Calculated, With Examples

The SIP formula

Value = P x ((1 + i)^n - 1) / i x (1 + i)

P = monthly SIP amount
i = expected yearly return / 12 / 100
n = number of months

The calculator assumes each SIP is paid at the start of the month and grows by the yearly return divided by 12 every month. That is the method most Indian fund calculators use, and it is what the extra x (1 + i) at the end stands for: each instalment gets one more month of growth than it would if paid at the end of the month.

Worked example: ₹10,000 a month for 10 years at 12%

1. P = 10,000.
2. i = 12 / 12 / 100 = 0.01.
3. n = 10 x 12 = 120 months.
4. (1.01)^120 is about 3.3004, so ((1.01)^120 - 1) / 0.01 is about 230.04.
5. 230.04 x 10,000 x 1.01 gives about ₹23,23,391.

You put in ₹12,00,000 over the 10 years. The estimated gain is ₹11,23,391. Leave the same SIP for 20 years and the estimate is ₹99,91,479 from ₹24 lakh invested, because the gains of the early years keep earning gains of their own.

Year by year: ₹5,000 a month at 12%

In the first year the gain is about ₹4,000. In the tenth year alone the value rises by about ₹1.88 lakh, of which only ₹60,000 is new money. This is why time in a SIP matters more than the exact start date.

How much the return you enter matters

The same ₹6 lakh invested ends up anywhere from about ₹9.2 lakh to ₹13.1 lakh depending only on the return you type. The calculator cannot know the real return. 10 to 12% is a common long-term guess for equity funds and 6 to 8% for debt funds, but these are guesses, not promises.

Step-up SIP

A step-up raises the SIP once a year by a set percentage, usually as your salary grows. ₹5,000 a month with a 10% step-up for 10 years at 12% means ₹9,56,245 invested and an estimated ₹16,87,163 at the end, compared with ₹11,61,695 for a flat ₹5,000 SIP.

SIP vs lumpsum

Lumpsum is one payment at the start, compounded once a year in this calculator. ₹1 lakh at 12% for 10 years grows to about ₹3,10,585.

The lumpsum looks far better, but only because all of the money is invested for the full 10 years, while the last SIP instalment is invested for one month. If you do not have the money on day one, the comparison does not apply. And at a steady return, the calculator ignores the main reason people choose a SIP: the market goes up and down, and buying a little every month spreads out the price you pay.

Another SIP calculator shows a slightly lower value? Some use a compounded monthly rate, or count each SIP at the end of the month. Both give a little less than the method used here. Neither is wrong; they are different assumptions.

Returns are not guaranteed

• The calculator assumes the same return every year. Real fund returns change every year, and equity funds can lose money, especially over short periods.
• Expense ratio, exit load and capital gains tax are not taken off.
• Inflation is not taken off either, so ₹23 lakh in 10 years will buy less than ₹23 lakh buys today.
• This is not investment advice. Read the scheme documents, or speak to a SEBI-registered adviser before you invest.

Common questions

What will a ₹5,000 SIP give in 20 years? About ₹49,95,740 at 12% a year, from ₹12 lakh invested.

What will ₹1,000 a month give in 10 years? About ₹2,32,339 at 12% a year, from ₹1,20,000 invested.

Does the year table show every year? Yes, for a SIP of 2 years or more, with the amount invested and the estimated value at the end of each year.