What a SIP calculator actually tells you
A systematic investment plan is an instruction to buy a fixed rupee amount of a mutual fund on the same date every month. You are not timing anything. When the unit price is low your money buys more units, when it is high it buys fewer, and over years the average cost settles somewhere in the middle.
What a SIP calculator does is simpler than most people expect. It takes your instalment, an annual rate you choose, and a number of years, and it compounds the series forward. The output has three parts: the invested amount, which is just your instalment multiplied by the number of months, the estimated returns, which is everything above that, and the total value, which is the two added together.
The number it gives you is arithmetic, not a forecast. Nothing in the calculation knows what the market will do. The rate you type in is an assumption you are making, and the result is only as good as that assumption.
How the maths works
The standard formula for the future value of a monthly investment is:
M = P × ({[1 + i]^n − 1} / i) × (1 + i)
- M is the maturity amount
- P is the monthly instalment
- n is the number of instalments
- i is the periodic rate of return
The detail that trips people up is i. It is not your annual rate divided by twelve. For 12% a year, the monthly rate that compounds to 12% over twelve months is about 0.9489%, not 1%. Use 1% and you overstate the result.
The trailing (1 + i) is there because each instalment goes in at the start of its month rather than the end, so the whole series earns one extra period of return.
Work a small example through it. ₹1,000 a month for twelve months at 12% a year gives roughly ₹12,766 — you put in ₹12,000 and the return added about ₹766. Over a single year the gap is small. Over twenty it is most of the balance.
Why the time period matters more than the instalment
Compounding is not linear, and that is the whole argument for starting early rather than starting bigger.
Try it in the calculator above. ₹10,000 a month for 20 years at 12% comes to roughly ₹1 crore. Double the instalment to ₹20,000 but halve the period to 10 years and you end up with well under half that, despite investing the same total amount. The money that went in first had twenty years to compound; the money that went in later had ten.
This is also why pausing a SIP for a year costs more than the twelve instalments you skipped. You lose the instalments and every year of growth they would have had.
How to use this calculator
- Set the monthly investment to the amount you can commit to without needing it back.
- Set the expected return rate. For a diversified equity fund, 10–12% is a common long-run assumption; for debt, considerably less. Pick a number you can defend, not the best year you have seen.
- Set the time period in years.
- Read the three figures and the split on the right. Switch to Lumpsum if you want to compare a one-time investment instead.
Move the return rate from 12% to 10% and watch what happens to a twenty-year result. That sensitivity is the most useful thing on this page.
What it leaves out
Be clear about the gap between this number and your bank balance:
- Expense ratio. A fund charges a percentage of assets every year. Your actual return is net of it, so if you enter the fund's headline return you are overstating what you receive.
- Exit load. Many equity funds charge around 1% if you redeem within a year.
- Taxes. Equity gains above ₹1.25 lakh in a financial year are taxed, and each SIP instalment has its own holding period for that purpose.
- A constant rate. Real returns arrive unevenly. Ending value depends heavily on what the market does in the last few years, when the balance is largest.
Treat the output as the shape of the outcome, not the outcome.