How the result is calculated
A systematic investment plan, or SIP, buys units of a mutual fund with the same sum every month. Each instalment then grows for a different length of time: the first for the whole plan, the last for a single month. The value at the end is the sum of every instalment grown by its own number of months, and because the instalments are equal, that sum has a closed form.
FVP × ((1 + i)n − 1) ÷ i × (1 + i)
- P
- the monthly instalment
- i
- the monthly rate of return
- n
- the number of instalments
Two conventions sit inside that line, and both matter. The first is timing. AMFI, the Association of Mutual Funds in India, publishes an investor-education calculator that counts each instalment from the start of its month, which is how a SIP debited on the fifth of the month and invested that day behaves; that is the (1 + i) at the end. The second is the monthly rate. AMFI's calculator divides the annual return by twelve, so 12% a year is 1% a month. Some platforms instead use the monthly rate that compounds to the annual figure, (1 + 12%)^(1/12) − 1, or 0.949% a month, which produces a lower result. The calculator follows AMFI by default and offers the other under Monthly rate, so you can reproduce either.
A step-up raises the instalment once a year. The closed form no longer applies, because the instalments are no longer equal, so the calculator adds the months up one by one, raising the instalment after every twelfth.
Worked example
| Item | Amount | How it is obtained |
|---|---|---|
| Monthly instalment, P | 5,000 | Monthly investment |
| Monthly rate, i | 1% | 12% ÷ 12 |
| Instalments, n | 120 | 10 years × 12 |
| Growth factor, (1 + i)n | 3.30039 | 1.01120 |
| Value of the instalments | 1,161,695.38 | 5,000 × (3.30039 − 1) ÷ 0.01 × 1.01 |
| Invested | 600,000.00 | 120 × 5,000 |
| Estimated gains | 561,695.38 | 1,161,695.38 − 600,000, about 11.62 lakh in all |
On the compound-equivalent monthly rate the same plan comes to 1,120,179.45, about 41,500 less, which is the gap between the two families of SIP calculator.
| Item | Amount | How it is obtained |
|---|---|---|
| Year 1 instalment | 5,000.00 | Monthly investment |
| Year 2 instalment | 5,500.00 | 5,000 × 1.10 |
| Year 10 instalment | 11,789.74 | 5,000 × 1.109 |
| Invested over 10 years | 956,245 | 12 × the ten yearly instalments |
| Estimated gains | 730,918 | month by month at 1% |
| Value after 10 years | 1,687,163 | matches AMFI's published 16,87,163 |
Reading the result
The headline is the estimated value at the end of the plan, with what you invested and the estimated gains beneath it. The chart stacks the two: the invested layer rises in a straight line, or in steps with a step-up, while the gains layer curves upward as earlier instalments compound. The table gives the position at the end of each year, with the instalment that applied in that year.
When a step-up is set, the third tile shows the final year's instalment and, as its note, what the plan would be worth without the step-up, so you can see what the rising instalments added.
What changes the result
The assumed return changes the answer most, and it is the one input nobody knows. At 5,000 a month for 10 years, 8% gives about 9.2 lakh, 12% about 11.6 lakh and 15% about 13.9 lakh. Run more than one.
Time matters more than the instalment. Doubling the term from 10 to 20 years at 12% multiplies the final value by about 4.3, from 11.6 lakh to 50 lakh, while the amount invested only doubles. The extra years are when the early instalments do most of their compounding.
A step-up is the most direct way to keep a SIP in step with income. Even a modest yearly increase lifts the end value substantially, because each increase also compounds for the rest of the plan.
What is not included
Real funds do not return the same amount every month. A SIP's actual result depends on the order of good and bad months as well as their average, which is why a SIP into a volatile fund can end above or below any single-rate projection. The calculator does not deduct expense ratios unless your return is already net of them, and it ignores exit loads, stamp duty on purchases and capital gains tax on redemption. Missed or late instalments and the exact day units are allotted are not modelled.
Using the result
Use it to size a plan, not to forecast a fund. Decide the sum you need and the years you have, then try a cautious return and a hopeful one; if the plan only works at the hopeful one, raise the instalment or the step-up rather than counting on the market. Compare funds by their costs and their record over long periods, and remember that the projection's steady line is a convenience: the path will be uneven.