How the SIP formula works
A systematic investment plan puts a fixed amount into a fund every month. This calculator projects the maturity value by assuming that the fund grows at a constant annual rate, using the future value of an annuity due:
M = P × [((1 + i)n − 1) / i] × (1 + i)
Pis the monthly instalment.iis the monthly rate, which is the expected annual return ÷ 12 ÷ 100. So 12% becomes 1% a month.nis the number of instalments, which is the duration in years × 12.
The trailing (1 + i) factor treats each instalment as made at the start of the month, so every payment earns a full month more than it would at month end. With a 0% return the tool returns P × n. The three outputs are Invested (P × n), Est. returns (maturity minus invested) and Maturity value.
Worked example
5,000 a month for 10 years at 12%: n = 120 and i = 0.01. The growth factor ((1.01)120 − 1) / 0.01 is about 230.04, times 1.01 is 232.34, and times 5,000 gives a maturity value of about 11,61,695. You invested 6,00,000, so the estimated gain is 5,61,695.
Why time matters more than amount
| 5,000/month at 12% | Invested | Maturity value |
|---|---|---|
| 5 years | 3,00,000 | 4,12,432 |
| 10 years | 6,00,000 | 11,61,695 |
| 20 years | 12,00,000 | 49,95,740 |
| 30 years | 18,00,000 | 1,76,49,569 |
Going from 20 to 30 years raises what you put in by 50% but multiplies the result by about 3.5, because the later years compound on a much bigger base. Rate matters too: for the same 10-year plan, 8% gives about 9,20,828, 10% about 10,32,760 and 15% about 13,93,286.
What the number does not include
- Constant return. Real equity returns fluctuate. A projected 12% is an assumption you supply, not a forecast, and a SIP's actual results depend on the market path.
- Nominal monthly rate. The tool divides the annual figure by 12. A 12% input therefore compounds to an effective annual rate of about 12.68%. If your 12% is an annualised (effective) return, the result will be slightly optimistic.
- Costs and tax. Expense ratios, exit loads and capital gains tax are not deducted. Use an after-cost return if you want a conservative figure.
- Flat instalments. There is no step-up and no inflation adjustment. A maturity of 11.6 lakh in 10 years buys less than 11.6 lakh does today; the inflation calculator can show the real value.
For a one-time deposit instead of monthly instalments, use the compound interest calculator. The guide on how SIP returns work explains the maths in more depth, and the retirement calculator applies similar logic to a long-horizon goal.