SIP Calculator

What a SIP is and why the maths differs from a lump sum

A systematic investment plan is simply a fixed amount invested at a regular interval, usually monthly, usually into a mutual fund. The mechanics matter for the calculation: each instalment compounds only from the date it is invested, so your first contribution grows for the entire term while your last grows for a month.

That makes a SIP an ordinary annuity, valued as FV = A × ((1 + i)^n − 1) / i × (1 + i), where A is the monthly amount, i the monthly return and n the number of instalments. It is not the same as investing the total sum at the start, and produces a smaller figure for the same money.

The comparison is instructive: ₹5,000 a month for ten years is ₹600,000 invested. The same ₹600,000 invested as a lump sum on day one at the same return finishes considerably higher, because every rupee compounds for the full ten years rather than an average of five.

Why people choose a SIP anyway

Mostly because they do not have the lump sum. A SIP invests income as it arrives, which is how most people's finances actually work.

The second reason is rupee-cost averaging. A fixed monthly amount buys more units when prices are low and fewer when they are high, which mechanically lowers the average purchase price relative to a fixed number of units bought each month. In a volatile or falling-then-rising market this genuinely helps.

The third is behavioural, and probably the most valuable. An automated monthly transfer removes the decision, and removing the decision removes the temptation to wait for a better entry point — a wait which, for most investors, costs more than any market timing gains.

Note the flip side: in a market that rises steadily throughout the period, a lump sum invested at the start beats a SIP, because averaging in means buying at progressively higher prices.

Choosing a realistic return figure

The expected-return input is doing all the work in this projection, and it is a guess. Treat the output accordingly.

Long-run equity index returns have historically fallen in the 10–12% nominal range in India and 7–10% in developed markets, before fees and tax. Debt funds run considerably lower. Whatever figure you use, understand that a projection at 15% is not a forecast, it is an assumption that has to be earned.

Run the calculation at three rates — a pessimistic one, a central one and an optimistic one. The spread between them tells you far more about the range of realistic outcomes than any single number, and it is more honest than treating one projection as a plan.

Subtract the fund's expense ratio from your assumed return before calculating. A 1.5% expense ratio on an assumed 12% return means you should model 10.5%.

What this does not model

Volatility, and specifically sequence risk. This assumes a smooth constant return; real markets deliver an irregular series, and the order of good and bad years affects the outcome substantially — especially near the end of the period, when the balance is largest.

Tax on gains, which depends on your jurisdiction, holding period and the type of fund. In several markets, gains held beyond a threshold period are taxed at a lower rate, which is a meaningful argument for staying invested.

Inflation. A projection of ₹1 crore in twenty years is in future rupees; at 6% inflation that is worth roughly ₹31 lakh in today's money. For a spending goal, model a real return instead.

And step-up contributions. Many people increase their SIP as income grows, which materially improves outcomes and is not captured by a fixed monthly figure.