A Systematic Investment Plan (SIP) is one of the most common ways Indians invest in mutual funds, but the number a SIP calculator shows you — "invest ₹10,000/month for 10 years and get ₹23 lakh" — can feel like a black box. It isn't. It's a single, well-defined compound interest formula applied to a series of monthly contributions.
The formula
SIP future value is calculated as:
FV = P × [((1 + i)^n − 1) / i] × (1 + i)
Where P is your monthly investment, i is the expected monthly rate of return (your assumed annual return divided by 12), and n is the total number of months invested.
Why the first instalment grows more than the last
Every monthly instalment compounds for a different length of time. Your very first ₹10,000 has the full 10 years to grow; the instalment you invest in the final month barely earns any return before the tenure ends. The formula above accounts for all of this by summing a geometric series — you don't need to calculate each instalment separately, but it explains why the "invested amount" and "returns" portions of a SIP result look the way they do.
The one input that changes everything: assumed return
The biggest driver of a SIP projection isn't the monthly amount or even the tenure — it's the assumed annual rate of return, because it compounds. Try running our SIP Calculator with 10% and then 14% for the same monthly amount and tenure; the gap in projected corpus is larger than most people expect, and it grows with tenure. Mutual fund returns are market-linked and never guaranteed, so treat any single assumed rate as one scenario, not a forecast.
What a step-up SIP changes
A standard SIP formula assumes a flat monthly contribution throughout. If your contribution increases every year — which is realistic for most salaried investors as income grows — the calculation needs to treat each year's contribution as its own mini-SIP with its own remaining compounding period, then sum them. That's exactly what our Step-Up SIP Calculator does, and it's worth comparing against a flat SIP to see how much difference even a modest annual step-up makes over a decade or more.
Comparing SIP against a lumpsum
If you have a choice between investing gradually via SIP or all at once, the Lumpsum Calculator uses simple compound interest (FV = P × (1 + r)^n) rather than the SIP series formula, since there's only one contribution instead of many. Comparing the two side by side, for the same total amount invested, illustrates the trade-off between market timing risk and rupee-cost averaging — neither is inherently better in every market condition.
Measuring your actual return afterward
Once you've been investing for a while with irregular top-ups or withdrawals, the forward-looking SIP formula above isn't the right tool to measure what you actually earned — that's what XIRR is for. XIRR works backward from your real cash flow dates and amounts to a single annualised return, which is the number that actually reflects your personal investing history rather than a clean, evenly-spaced projection.