How SIP Returns Work
A SIP (Systematic Investment Plan) is a way to invest a fixed amount every month — usually into a mutual fund — instead of a single lump sum. Each installment buys units at that month's price, and over time the magic comes from compounding: returns earn their own returns.
Why a SIP is more than the sum of your deposits
Every contribution stays invested for a different length of time. Your first installment compounds for the full term, while your most recent one has only just started. The total maturity value is the sum of each installment growing for its own number of months — which is why the final figure is much larger than the amount you put in.
The SIP future value formula
SIP maturity uses the future value of a series: M = P × [((1 + i)n − 1) ÷ i] × (1 + i), where P is the monthly investment, i is the monthly rate (annual return ÷ 12 ÷ 100), and n is the number of installments.
A worked example
Invest ₹5,000 a month for 10 years (120 installments) at an expected 12% annual return. You contribute ₹6,00,000 in total, but the estimated maturity value is about ₹11.6 lakh — nearly double — because of compounding. Try your own numbers in the SIP calculator.
What changes the outcome
- Time — the single biggest factor. Starting a few years earlier can dwarf a larger monthly amount started later.
- Expected return — small differences in the assumed rate compound into large gaps over decades.
- Monthly amount — increasing your SIP even slightly each year (a "step-up") accelerates growth.
Returns are estimates, not guarantees
SIP calculators assume a constant rate, but market-linked returns vary year to year. Use the figure as a planning target, not a promise. It also helps to view long-term goals in today's money — see how inflation erodes buying power, and use the ROI calculator to compare an actual investment's annualized return (CAGR) against your plan.
For the underlying math behind compounding on a lump sum rather than a monthly series, the compound interest calculator shows how frequency and rate drive growth.