About the SIP calculation
A systematic investment plan puts a fixed amount into the market every month regardless of price, which averages your entry cost and removes the temptation to time the market. The projection below assumes a constant annual return — real markets do not deliver that smoothly, and the final figure will differ.
Formula
M = PMT × ((1+i)ⁿ − 1) ÷ i × (1+i)
PMT = monthly investment
i = monthly rate = annual ÷ 12 ÷ 100
n = number of months
The trailing (1+i) is because SIP mandates debit at the START of each month.Worked example
5,000 a month at 12% for 10 years: i = 0.01, n = 120. M = 5,000 × ((1.01¹²⁰ − 1) ÷ 0.01) × 1.01 = about 1,161,695, against 600,000 actually invested.
Frequently asked questions
Is a 12% return realistic?
It is a common long-run assumption for equity funds, but it is not a promise. Markets deliver that as a multi-decade average with severe drawdowns along the way. Run the numbers at 8% and 15% too, and treat the spread as the honest answer.
Why does the value barely move in the early years?
Because early on, almost all of your balance is money you contributed. Returns only dominate once the accumulated pot is large relative to the monthly amount, which typically takes ten years or more.
What is rupee-cost or dollar-cost averaging?
Investing a fixed amount at regular intervals buys more units when prices are low and fewer when high, so your average cost per unit is lower than the average price over the period. It is the main structural advantage of investing monthly instead of in one lump.
Does this account for tax or fund fees?
No. Expense ratios reduce returns every year and capital gains tax applies on redemption. Subtract roughly 1% from your expected return to approximate fees before entering it.
Sources
- Future value of an annuity due