What a SIP is and why it works
A Systematic Investment Plan is an instruction to your mutual fund to debit a fixed amount from your bank account on the same date every month and buy units at whatever the price is that day. That is the whole mechanism. Its power comes from two things it forces you to do.
It removes the timing decision. Because you buy on a fixed date regardless of market level, you automatically buy more units when prices are low and fewer when they are high. This is rupee cost averaging, and over a long period it lowers your average cost per unit compared with trying to pick entry points.
It makes compounding automatic. Returns earned on your units start earning returns themselves. Over a decade this dominates: on a ₹5,000 monthly SIP at 12% for 10 years you contribute ₹6,00,000 and end with about ₹11,61,695. Nearly half the final value is growth you did not deposit.
The effect accelerates sharply with time. The same ₹5,000 a month at 12% produces:
| Period | Invested | Maturity value | Gain |
|---|---|---|---|
| 5 years | ₹3,00,000 | ₹4,12,432 | ₹1,12,432 |
| 10 years | ₹6,00,000 | ₹11,61,695 | ₹5,61,695 |
| 15 years | ₹9,00,000 | ₹25,22,880 | ₹16,22,880 |
| 20 years | ₹12,00,000 | ₹49,95,740 | ₹37,95,740 |
| 25 years | ₹15,00,000 | ₹94,88,175 | ₹79,88,175 |
Note what happens between year 20 and year 25. You add ₹3,00,000 more and the maturity value rises by nearly ₹45,00,000. That is why starting early beats investing more later.
The SIP formula
A SIP is a series of equal payments, so it uses the future value of an annuity-due formula — "due" because the instalment is invested at the start of each period:
- FV
- Future value — the maturity amount
- P
- Monthly SIP instalment
- i
- Monthly rate of return — annual rate ÷ 12 ÷ 100
- n
- Total number of instalments — years × 12
The final (1 + i) term accounts for each instalment earning a month of
growth from the moment it is invested. Calculators that omit it understate the result by
roughly one month's return.
Step-up SIP
A step-up SIP has no single closed-form expression, because the instalment changes each year. It is computed year by year: run twelve months at the current instalment, grow the accumulated balance, then raise the instalment by the step-up percentage and repeat. This calculator does exactly that when you switch to step-up mode.
A worked example
You invested ₹6,00,000 and gained ₹5,61,695 — a 93.6% absolute return.
The same SIP with a 10% annual step-up
Raise the instalment 10% each year — ₹5,000 in year one, ₹5,500 in year two, ₹6,050 in year three, and so on. Total invested rises to ₹9,56,245 and the maturity value reaches about ₹17,63,000. Switch the toggle above to see it.
Choosing a realistic return rate
The single input that most changes your result is the expected return, and it is the one people get wrong. A calculator assuming 15% will show a number nearly twice as large over 20 years as one assuming 10%. Neither is a forecast.
| Fund category | Typical long-run range | Suits |
|---|---|---|
| Large-cap equity | 10% – 12% | Core holding, 7+ year horizon |
| Flexi-cap / multi-cap | 11% – 14% | Core holding, 7+ years |
| Mid-cap equity | 12% – 16% | Higher volatility, 10+ years |
| Small-cap equity | 13% – 18% | Highest volatility, 10+ years |
| Hybrid / balanced | 8% – 11% | Moderate risk, 5+ years |
| Debt funds | 6% – 8% | Short horizons, capital stability |
Returns are before tax
Equity mutual fund gains held over 12 months are long-term capital gains, taxed at 12.5% above the annual exemption limit under current Indian rules. Gains on units held under 12 months are short-term and taxed at 20%. Because a SIP buys units on many different dates, each instalment has its own holding period. Your maturity value above is pre-tax.
SIP or lumpsum?
If you have money to invest today, a lumpsum mathematically beats a SIP in a rising market, because all of it is exposed to growth for the full period. Over the same 10 years at 12%, ₹6,00,000 invested at once grows to about ₹18,63,500 against a SIP's ₹11,61,695 — the same total contribution, ₹7,00,000 more at the end.
That comparison assumes markets rise. If the market falls 25% in year two, the lumpsum investor takes the full hit on the entire capital, while the SIP investor is still buying at the lower prices. A SIP trades some expected return for a much narrower range of outcomes.
In practice the choice is usually made for you. Most people invest from monthly income, which is a SIP by definition. If you have received a bonus or a maturity payout, a common middle path is a Systematic Transfer Plan: park the amount in a liquid fund and transfer a fixed sum into equity each month. See the lumpsum calculator to compare directly.
Frequently asked questions
What return rate should I use in a SIP calculator?
For diversified equity funds over a period of ten years or more, 11% to 12% is a defensible planning assumption. It is close to long-run Indian equity market returns without assuming you pick an above-average fund.
Run the calculation twice: once at 12% for a central case, once at 8% for a conservative one. If your goal only works at 15%, the plan is fragile and you should either invest more or extend the horizon.
Can I stop or pause a SIP?
Yes. A SIP is not a contract with a lock-in. You can pause it, usually for one to six months, or stop it entirely by cancelling the mandate — typically with 15 to 30 days' notice. Units already bought stay invested and keep growing.
The exception is ELSS (tax-saving) funds, where each individual instalment is locked for three years from its own purchase date. You can stop future instalments at any time, but you cannot redeem units before their three years are up.
Is the SIP maturity amount guaranteed?
No. Mutual funds invest in market-linked securities and returns vary. The figure this calculator produces assumes a constant annual return, which no real fund delivers.
Actual outcomes depend on the fund's performance and, importantly, on market levels in the final years of your period. A portfolio can be up 14% annualised at year 18 and 11% at year 20. As you approach a goal, shifting gradually from equity to debt protects against exactly that.
What is a step-up SIP and is it worth it?
A step-up (or top-up) SIP raises your instalment by a set percentage each year, usually to match salary growth. It counteracts the fact that a fixed ₹5,000 buys less every year as inflation erodes it.
The effect is substantial. ₹5,000 a month for 20 years at 12% reaches about ₹49.9 lakh. With a 10% annual step-up, the same starting instalment reaches roughly ₹1.19 crore. You contribute more, but the increases are matched to income you did not have when you started.
Which date of the month is best for a SIP?
It makes almost no measurable difference. Studies comparing SIP dates across long periods find the variation between the best and worst dates is a fraction of a percentage point, and which date wins changes depending on the period tested.
Choose a date shortly after your salary credits, so the money is there. Consistency matters far more than the date.
How is SIP different from a recurring deposit?
A recurring deposit pays a fixed, contractually guaranteed interest rate — currently around 6.5% to 7.5% — and your capital is safe. A SIP into an equity fund has no guarantee and can lose value in the short term, but has historically returned more over long periods.
RDs also tax interest as income at your slab rate every year. Equity fund gains are taxed only on redemption, at 12.5% for long-term gains. Compare directly with our RD calculator.
What happens if I miss a SIP instalment?
Nothing happens to your existing investment. The fund simply does not receive that month's money and no units are bought. Your bank may charge a mandate failure fee, typically ₹100 to ₹750, and the fund house may cancel the SIP after three consecutive failures.
You cannot retroactively make up a missed instalment at the old price, though you can make an additional purchase at the current price at any time.