How the SIP maturity value is computed
A SIP is a series of equal monthly investments, each compounding from its own deposit date to the end. The future value formula:
FV = SIP × ((1+i)ⁿ − 1) ÷ i × (1+i)
where i is the monthly rate (annual return ÷ 12 ÷ 100) and n the number of monthly instalments. For ₹5,000 a month at 12% over 10 years: i = 0.01, n = 120, and the corpus works out to about ₹11.62 lakh, on just ₹6 lakh actually invested. The other ₹5.6 lakh is compounding doing its slow, back-loaded work.
Why the (1+i) at the end, annuity-due, explained
An ordinary annuity assumes each deposit lands at the end of its month; an annuity-due assumes the start. A SIP debit hits your account on a fixed date and the units are allotted then, so the money is invested through that month, start-of-month is the honest model, and it is the convention every Indian SIP platform uses. The difference is the single factor of (1+i): each of the 120 instalments earns one extra month of growth, lifting the 10-year example from about ₹11.50 lakh to ₹11.62 lakh. Small per month, visible over a decade, and the usual reason two calculators disagree on the same inputs.
What ₹5,000 a month builds at 12%
| Period | Invested | Corpus (approx.) |
|---|---|---|
| 5 years | ₹3.0 lakh | ₹4.12 lakh |
| 10 years | ₹6.0 lakh | ₹11.62 lakh |
| 15 years | ₹9.0 lakh | ₹25.2 lakh |
| 20 years | ₹12.0 lakh | ₹50.0 lakh |
Read the table vertically: doubling the tenure from 10 to 20 years doubles the money invested but more than quadruples the corpus. The last five years of a 20-year SIP add more growth than the first ten combined. That asymmetry is the entire argument for starting early rather than starting big.
What return should you assume?
The honest answer is a range, not a number. Diversified Indian equity funds have historically delivered low-double-digit annualised returns over long holding periods, which is why 12% is the default here, but debt funds sit far lower, and no ten-year window is guaranteed to match the long-run average. Two practical rules: use a return net of the expense ratio, and stress-test the plan at 2–3 percentage points below your base case. A goal that only works at 14% is a hope, not a plan. To see what inflation does to the corpus you are targeting, run it through the inflation calculator, ₹50 lakh twenty years out buys far less than ₹50 lakh today.
SIP vs lump sum in volatile markets
A SIP buys a fixed rupee amount each month, so it automatically buys more units when the NAV falls and fewer when it rises, rupee-cost averaging. In a steadily rising market this drags on returns versus investing everything up front, because the averaged-in money spends less time invested. In a volatile or falling-then-recovering market, the cheap units bought near the bottom do heavy lifting, and the SIP can beat the lump sum. Since nobody knows which market they are about to get, the practical takeaways are: invest windfalls reasonably promptly rather than drip-feeding them for years, and let regular income flow in as a SIP. For the return you actually earned across messy, dated cash flows, the XIRR calculator is the right tool, point-to-point returns flatter or slander a SIP depending on the end date.
Taxation, briefly
Equity-fund gains are taxed on redemption, not accrual. Units held longer than 12 months are long-term: gains above the ₹1.25 lakh annual exemption are taxed at 12.5%. Units held under 12 months attract 20%. Because every instalment has its own purchase date, redemptions are matched first-in-first-out, the oldest, most-appreciated units go first. The figures above are pre-tax.
Two upgrades worth modelling
- Step up the SIP yearly. Increasing the instalment 10% a year alongside salary increments roughly halves the gap between what you can invest today and what your goal needs. The step-up SIP calculator shows the difference side by side.
- Plan the exit as carefully as the entry. A corpus is eventually drawn down, and the drawdown maths is different from the accumulation maths, the SWP calculator covers how long a corpus lasts at a given monthly withdrawal.